Question

Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of ($200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000.

Answer 1

False

Step-by-step explanation:

Green's distribution of $50,000 in to its sole shareholder at the end of the year should be treated as a dividend because Green's total earnings and profits for the year were $100,000.

A distribution from a corporation to a shareholder can only be treated as a dividend when the corporation made a profit during the current year, or has positive accumulated earnings and profits.