15.Kayla and Kelli, equal shareholders in Martin Corporation, receive $600,000 each in

distributions on December 31 of the current year. Martins current year taxable income is $1

million and it has no accumulated E & P. Last year, Martin sold an appreciated asset for

$1,200,000 (basis of $400,000). Payment for one-half of the sale of the asset was made this year.

How much of Kaylas distribution will be taxed as a dividend?

Please show all calculations.

1. $0

2. $300,000

3. $500,000

4. $600,000