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# This post addresses a distribution practice question.

A corporation that has both preferred and common stock has a deficit in accuulated earnings and profit at the beginning of the year. The current earnings and profits are \$25,000. the corporation makes a divided distribution of \$20,000 to the preferred shareholders and \$10,000 to the common shareholders. How will the preferred and common shareholders report these distributions?

A) Preferred - \$20,000 dividend income; common - \$10,000 dividend income

B) Preferred - \$20,000 dividend income; common - \$5,000 dividend income, \$5,000 return of capital

C) Preferred - \$15,000 dividend income; common - \$10,000 dividend income

D) Preferred- \$20,000 return of capital; common - \$10,000 return of capital

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B) Preferred - \$20,000 dividend income; common - \$5,000 dividend income, \$5,000 return of capital

The ...

#### Solution Summary

This solution gives the correct choice with explanation to the following multiple choice practice question:

A corporation that has both preferred and common stock has a deficit in accuulated earnings and profit at the beginning of the year. The current earnings and profits are \$25,000. the corporation makes a divided distribution of \$20,000 to the preferred shareholders and \$10,000 to the common shareholders. How will the preferred and common shareholders report these distributions?

A) Preferred - \$20,000 dividend income; common - \$10,000 dividend income

B) Preferred - \$20,000 dividend income; common - \$5,000 dividend income, \$5,000 return of capital

C) Preferred - \$15,000 dividend income; common - \$10,000 dividend income

D) Preferred- \$20,000 return of capital; common - \$10,000 return of capital

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