Blue Llama Corp., a California corporation, has 100,000 shares that...

Blue Llama Corp., a California corporation, has 100,000 shares that are issued and outstanding. After losing money every year since its formation (accumulated deficit of $1 million), Blue Llama Corp. finally had a profitable year in 2021, earning $100,000 in profits. To reward shareholders, the Blue Llama Corp. board of directors declared and paid a $2 distribution per share to each of its shareholders (total of $200,000 for all shareholders).

Ted Rivera is a U.S. citizen residing in Arizona. Ted owns 10,000 (10%) of the shares of Blue Llama and receives a distribution of $20,000. Ted's adjusted tax basis in the shares is $5,000. Which of the following is true about Ted's $20,000 distribution from Blue Llama?

a)  Only $10,000 as a dividend because Blue Llama had profits of $100,000 in 2021

b)  $10,000 as a dividend and $5,000 as capital gain

c)  $10,000 as a dividend and $10,000 as capital gain

d)  None because Blue Llama Corp. had an accumulated deficit