On January 1, 2014, Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's 2014 taxable income is $6,000. Kinney distributes $6,000 to each shareholder on February 1, 2014, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on the distribution?
a. $500 dividend income.
b. $1,000 dividend income.
c. $1,500 dividend income.
d. $3,000 dividend income.
e. None of the above.
The answer is C but how?