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 5

Pine Corp. a calendar-year corporation, was formed three years ago by its sole shareholder, Connor, who has always operated it as a C corporation.However, at the beginning of this year, Connor made a qualifying S election for Pine Corp. effective January 1.Pine Corp.reported $70,000 of C corporation earnings and profits on the effective date of the S election.This year (its first S corporation year), Pine reported business income of $50,000.Connor's basis in his Pine Corp.stock at the beginning of the year was $15,000.What is the amount and character of gain Connor must recognize on the following alternative distributions, and what is his basis in his Pine Corp.stock at the end of the year?
a.Connor received a $40,000 distribution from Pine Corp.at the end of the year.b.Connor received a $60,000 distribution from Pine Corp.at the end of the year.c.Connor received a $130,000 distribution from Pine Corp.at the end of the year.d.Connor received a $150,000 distribution from Pine Corp.at the end of the year.