During the current year, Kay Co. made the following distributions to an individual shareholder who owns 455 shares of its only class of stock.

The shareholder assumed the mortgage on the property. Kay Co’s earnings and profits prior to the distribution were $70,000. Assuming a 21 percent corporate tax rate, what is the net adjustment to be made to the earnings and profits account due to the distribution?

a. $10,000 increase

b. $70,000 decrease

c. $74,000 decrease

d. $80,000 decrease

e. None of the above

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Cash Equipment: Adjusted basis Fair market value Liability $20,000 75,000 85,000 15,000