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

Exercise 76

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2.Johnstone's earnings and profits at the end of year 1 were $10,000.Marcus is Johnstone's sole shareholder.What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios?
a.Johnstone distributed $6,000 to Marcus in year 2.b.Johnstone distributed $10,000 to Marcus in year 2.c.Johnstone distributed $16,000 to Marcus in year 2.d.Johnstone distributed $26,000 to Marcus in year 2.