McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 30

At the end of the year, before distributions, Bombay (an S corporation) has a balance in its accumulated adjustments account of $15,000 and accumulated E P of $20,000 from a previous year as a C corporation. During the year, Nicolette (a 40 percent shareholder) received a $20,000 distribution (the remaining shareholders received $30,000 in distributions). What is the amount and character of gain Nicolette must recognize from the distribution What is her basis in her Bombay stock at the end of the year (assume her stock basis is $40,000 after considering her share of Bombay's income for the year but before considering the effects of the distribution)