Which of the following statements about earnings and profits (E&P) is false? A c

Question

Which of the following statements about earnings and profits (E&P) is false? A corporation can make taxable dividend distributions if it has current E&P, notwithstanding the fact that it may have a deficit in accumulated E&P B. A dividend is defined as paid out of either current or accumulated E&P. C. E&P consists of two basic parts: current E&P and accumulated E&P. The presumption is that every distribution is first made out of accumulated E&P and then from current E&P. D. Exam, Question Q 9 94% Complete

Explanation / Answer

Earning and Profits(E & P) ascertains the company's ability to pay the dividends to the shareholders of the company. E & P consists of two basic parts: current E & P and accumulated E & P. A dividend is defined as paid either out of current or accumulated E & P. Even if the corporation has a deficit in accumulated E & P, it can make taxable dividend distributions out of current E & P. But the presumption that every distribution is first made out of accumulated E & P and then out from current E & P is incorrect. Current E & P is utilised first on a pro rata basis then, accumulated E & P is utilised chronologically.

The Answer is Option D.

The presumption is that every distribution is first made out of accumulated E & P and then from current E & P.

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