Asked by Courtney Morris on Apr 28, 2024
Verified
Corporate distributions to shareholders that represent a nontaxable return of capital are those that are:
A) made from current year's profit of the corporation.
B) made from accumulated retained earnings of the corporation.
C) made from the excess over earnings and profits of the corporation.
D) made from the bank account of the corporation.
Nontaxable Return of Capital
A payment received from an investment that is not taxed because it is considered a portion of the original investment's cost being returned to the investor.
Retained Earnings
The portion of net income left over for the business after it has paid out dividends to its shareholders.
Earnings and Profits
A measure of a corporation’s ability to pay dividends to shareholders, not necessarily equal to net income.
- Acquire knowledge about the prerequisites and tax consequences associated with recognizing revenue, as well as the influence of forms of income that are exempt from taxation.
Verified Answer
LK
Laksh KingraniMay 01, 2024
Final Answer :
C
Explanation :
Corporate distributions to shareholders that represent a nontaxable return of capital are made from the excess over earnings and profits of the corporation, meaning that they are not attributable to the corporation's current year's profits or accumulated retained earnings. These distributions are typically considered a return of the shareholder's investment in the corporation, rather than a distribution of the corporation's earnings or profits.
Learning Objectives
- Acquire knowledge about the prerequisites and tax consequences associated with recognizing revenue, as well as the influence of forms of income that are exempt from taxation.