Question

Wildcat Corporation reports current earnings and profits (E&P) of negative $200,000 in 20X3 and accumulated E&P at the beginning of the year of $100,000. Wildcat distributed $300,000 to its sole shareholder on December 31, 20X3.

How much of the distribution is treated as a dividend in 20X3?
a. $0
b. $100,000
c. $200,000
d. $300,000

Answer 1

The distribution treated as a dividend in 20X3 would be $100,000.

Step-by-step explanation:

In 20X3, the distribution treated as a dividend would be $100,000

Earnings and profits (E&P) are used to determine the taxable dividend amount. If the distribution exceeds the accumulated E&P, it is considered a dividend to the extent of accumulated E&P, and any excess is treated as a return of capital or capital gain. In this case, since the accumulated E&P is $100,000 and the distribution is $300,000, $100,000 of the distribution is treated as a dividend in 20X3.