Question

Tomika Corporation has current and accumulated earnings and profits of​ $0. Tomika distributes​ $10,000 to its sole​ shareholder, Alana. What are​ Tomika's earnings and profits after the​ distribution? A. ​$0 B. ​($10,000) C. ​$10,000 D. none of the above

Answer 1

The answer is: A) 0$

Step-by-step explanation:

If Tomika Corporation's current and accumulated earnings and profits was $0, the fact that it distributed $10,000 to Alana (sole shareholder) wouldn't change that number. The only thing that has changed in Tomika is the amount of equity.

For earnings and profits account to change, Tomika must make or lose some money doing business.