1. ABC Corporations beginning balance of accumulated earnings and profits is a deficit of $100,000. It had current earnings and profits of $20,000. On March 1, the Corporation distributed $45,000 to its sole shareholder, R, who had a basis in his stock of $30,000. R will report:_____

1. no dividend income and a capital gain of $15,000
2. a dividend of $20,000 and return of capital of $25,000
3. a dividend of $20,000 and capital gain of $25,000
4. no dividend income and a capital gain of $25,000