Peggy Corporation has one shareholder (Peggy) and had losses in its first 10 years so that its accumulated earnings and profits was a negative amount--($28,000). However in year 11, the corporation was profitable and had a current year's earnings and profits of $30,000. Peggy received no dividends during the year, but the IRS determined that she had rented her warehouse to the corporation for an unreasonably excessive amount and determined that this resulted in a constructive dividend of $24,000. Which of the following statements is true?
Peggy Corporation has one shareholder (Peggy) and had losses in its first 10 years so that its accumulated earnings and profits was a negative amount--($28,000). However in year 11, the corporation was profitable and had a current year's earnings and profits of $30,000. Peggy received no dividends during the year, but the IRS determined that she had rented her warehouse to the corporation for an unreasonably excessive amount and determined that this resulted in a constructive dividend of $24,000. Which of the following statements is true?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Peggy Corporation has one shareholder (Peggy) and had losses in its first 10 years so that its accumulated earnings and profits was a
negative amount--($28,000). However in year 11, the corporation was profitable and had a current year's earnings and profits of $30,000.
Peggy received no dividends during the year, but the IRS determined that she had rented her warehouse to the corporation for an
unreasonably excessive amount and determined that this resulted in a constructive dividend of $24,000. Which of the following statements
is true?
Construtive dividends are not taxable because they are paid with and offset by construtive taxes.
Peggy had no dividend income from the construtive dividend because accumulated earnings and profits would not allow the excess rent
to be called a dividend.
Peggy has dividend income of $24,000
Peggy had dividend income of $2,000
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