Scarlet Corporation has a deficit in accumulated E & P of $500,000.It has current E & P of $350,000. On July 1, Scarlet distributes $400,000 to its sole shareholder, Lupita. Lupita has a basis of $95,000 in her stock in Scarlet Corporation. As a result of the distribution, Lupita has: a. Dividend income of $400,000. b. Dividend income of $95,000 and reduces her stock basis to zero. c. Dividend income of $350,000 and reduces her stock basis to $45,000. d. No dividend income, reduces her stock basis to zero, and has a capital gain of $400,000. At the beginning of the current year, Paul and Yong each own 50% of sparrow Corporation. In July. Paul sold his stock to Sarah for $110,000. At the beginning of the year, Sparrow Corporation had accumulated E & P of $200,000 and its current E & P is $240,000 (prior to any distributions). Sparrow distributed $260,000 on March 10 ($130,000 to Paul and $130,000 to Yong) and distributed another $260,000 on October 1 ($130,000 to Sarah and$130,000 to Yong). Sarah has dividend income of: $60,000. $90,000. $110,000. $130,000