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Determine the balances in each corporate account

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Question - Former C Corporation Income/Distributions - X Corp, an S corporation with 1 shareholder, incurred the following items in Year 1 and Year 2:

Year 1

Tax-exempt income $5,000

Ordinary income 30,000

Year 2

Ordinary loss (40,000)

Cash distribution 15,000

At the beginning of Year 1, the corporation had AAA and OAA balances of zero and accumulated E&P of $6,000. At the beginning of Year 1, the shareholder had a $10,000 basis in stock and a $12,000 basis in debt he loaned to the corporation.

(a) Determine the balances in each corporate account (AAA, OAA, E&P) and the shareholder's stock and debt bases at the end of each year.

(b) Determine the results if the distribution in Year 2 is $35,000 instead of $15,000.

(c) How does the answer to Part (b) change if, in Year 2, the corporation has an $18,000 LTCG in addition to the $40,000 OL?

Reference no: EM133185404

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