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 $11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) $ 174,000 Sales revenue Cost of goods sold Salary to owners Employee wages Depreciation expense Miscellaneous expenses (41,000) (66,000) (56,500) (10,000) (4,600) 12,540 Interest income Overall net income $ 8,440 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? (Leave no answer blank. Enter zero if applicable.)
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 $11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) $ 174,000 Sales revenue Cost of goods sold Salary to owners Employee wages Depreciation expense Miscellaneous expenses (41,000) (66,000) (56,500) (10,000) (4,600) 12,540 Interest income Overall net income $ 8,440 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? (Leave no answer blank. Enter zero if applicable.)
Chapter22: S Corporations
Section: Chapter Questions
Problem 36P
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Transcribed Image Text: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
$11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1.
Johnstone Corporation
Income Statement
December 31, Year 2
Year 2 (S
Corporation)
$ 174,000
( 41,000)
(66,000)
(56,500)
(10,000)
( 4,600)
12,540
$ 8,440
Sales revenue
Cost of goods sold
Salary to owners
Employee wages
Depreciation expense
Miscellaneous expenses
Interest income
Overall net income
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? (Leave no answer blank. Enter
zero if applicable.)
b. Johnstone distributed $11,200 to Marcus in year 2.
Accumulated adjustments account
Dividend income
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