What amount of the july distribution should be

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Unformatted text preview: Corp.: Accumulated earnings and profits at January 1, 19X2 Earnings and profits for the year ended December 31, 19X2 Cash distributions to individual stockholders during 19X2 $ 60,000 80,000 180,000 What is the total amount of distributions taxable as dividend income to Lamb's stockholders in 19X2? a. $180,000 b. $140,000 c. $80,000 d. $0 CPA-02163 Explanation Choice "b" is correct. Dividend income is distributions to shareholders first out of current earnings and profits, then out of accumulated earnings and profits. After earnings and profits have been depleted, the distribution is a liquidating return of capital. Since there is a total of $140,000 in earnings and profits ($80,000 + $60,000), $140,000 is dividend income. The remaining $40,000 is a liquidating return of capital. Choice "a" is incorrect. Distributions are considered dividends to the shareholders to the extent a corporation has current or accumulated earnings and profits. Therefore, the dividend treatment is limited to $14...
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.

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