Question

Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Each shareholder has a $400,000 stock basis as of January 1, 2015. At the beginning of 2015, Money has an AAA of $300,000 and AEP of $600,000. During 2015, Money has an operating income of $100,000. At the end of the year, Money distributes securities worth $1,000,000, with an adjusted basis of $800,000. b. At the end of the year, before the distribution, each shareholder's basis is $___after the distribution, each shareholder's basis is $______ . Each shareholder has $____ of dividend income.

Answer 1

Answer:

each shareholder has $250,000 of the dividends.

Explanation:

At the end of the year, just before the distribution, each shareholder's basis is:

= $400000 + 10000 + 50000

= $550,000

after the distribution, each shareholder's basis is:

= 300000 + 200000

= $500000

therefore, each shareholder has $250,000 of the dividends.