What amount of dividend income do shareholders of Pheasant Corporation report if a $600,000 distribution is made with $400,000 of current earnings and profits?

Shareholders of Pheasant Corporation report dividend income based on the distribution's earnings and profits. In this scenario, the corporation has made a total distribution of $600,000, but only $400,000 of that comes from current earnings and profits.

According to tax regulations, dividend income is recognized up to the amount of the corporation's current and accumulated earnings and profits. Therefore, since the current earnings and profits for Pheasant Corporation amount to $400,000, this is the maximum amount that can be classified as taxable dividend income to the shareholders.

Thus, the shareholders would report $400,000 as dividend income, because this amount is fully supported by the corporation's earnings and profits, and any distribution above this amount would not be classified as a dividend but rather a return of capital, and potentially other tax implications could apply depending on the specifics of the shareholder's stock basis. This classification is fundamental in determining the taxability of dividends received by shareholders.