The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with a stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply.) Use a 34 percent corporate tax rate in this problem During the current year, X accrued income and expense as set forth : Gross income from business $500 Dividends on AT&T stock (consider section 243) $100 Interest on municipal bonds (section103) $100 Capital gain $100 Total $800 Deducible section162 (a)(1) business expenses $430 Noncapital expenses not deductible under section162 (e) $90 Capital losses (section1211 (a)) $146 Total $666 Net $134. X has always been an S corporation.

Required:

How will X’s distribution of $100 to each shareholder in the current year affect the shareholders? (Show a complete calculation of basis and the effect of the distribution for each shareholder. Noted: addition to each shareholder's stock basis is 67)