Final answer:
To properly track earnings and profits, a corporation must keep c. a current E&P account.
Step-by-step explanation:
To properly track earnings and profits, a corporation must maintain separate records for its current E&P, which pertains to the company's profits for the present year, as well as its accumulated E&P, which is the net profit after taxes and dividends over the years minus any losses. Thus, the correct answer to the student's question is that a corporation must keep both a current and an accumulated E&P account.
These financial measures are essential for various corporate activities, including the calculation of dividends distributed to shareholders. The current E&P influences decisions for the ongoing year, such as dividend payments and estimated tax payments. The accumulated E&P, on the other hand, provides insight into how much earning power a corporation retains after it has reinvested earnings and paid out dividends over time. This history is vital for understanding the company's long-term financial health and making strategic decisions. The answer is option c.