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.)
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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Question
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 r evenue
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
Expert Solution
Step 1
Dividend income is the income which a stakeholder who is also known as the shareholder receives from the company on the investment made by him or her into the corporation. It is a return or income to the shareholder.
Given in the question:
Johnstone Corporation has Earnings and profits at the end of year 1 = $11,560
Marcus is the sole shareholder and he has a stock basis of $46,000 at the end of year 1
Overall Net Income at the end of year 2 = $8,440
Interest Income for the year 2 = $12,540
Johnstone distributed $11,200 to Marcus in year 2
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