Question

At the beginning of the current year, both Doug and Amelia each own 50% of Amaryllis Corporation (a calendar year taxpayer). In July, Doug sold his stock to Kevin for $140,000. At the beginning of the year, Amaryllis Corporation had accumulated E& P of $240,000 and its current E & P is $280,000 (prior to any distributions). Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Alfred) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Alfred). Kevin has dividend income of:_______

a. $150,000.b. $140,000.c. $110,000.d. $70,000.e. None of the above.

Answer 1

Kevin's dividend income from Amaryllis Corporation would be the full $150,000 distribution he received, as it is within the remaining Earnings & Profit (E&P) of the company after an earlier distribution.

Step-by-step explanation:

Kevin's dividend income calculation for Amaryllis Corporation's distributions would be done based on the Earnings & Profit (E&P) of the corporation. The E&P is an indicator of the company's ability to pay dividends out of its profits. Since Kevin received a distribution in November, after the first distribution in February, we need to account for the changes in the E&P balance throughout the year.

Amaryllis Corporation had an accumulated E&P of $240,000 at the beginning of the year and added $280,000 to it during the year, for a total of $520,000 in E&P before any distributions. After the first distribution of $300,000 on February 15, the remaining E&P would be $220,000. Thus, when Kevin receives his $150,000 distribution in November, that entire amount is within the remaining E&P, meaning it can be classified in full as dividend income for Kevin.

Therefore, Kevin's dividend income is $150,000.