Adrian owns 100% of the stock in Balboa Corporation (Balboa), a calendar year corporation. Adrian has an adjusted basis of $25,000 in her stock as of the beginning of the current year (2016). Balboa has a CE&P deficit of ($10,000) (i.e., negative $10,000) for the current year (2016) and a positive AE&P of $90,000 as of the beginning of the year. Balboa makes a nonliquidating distribution to Adrian of $40,000 on December 31, 2016.

1. How much of the distribution to Adrian is treated as a dividend?
   1. $0
   2. $25,000
   3. $40,000
   4. $15,000
   5. $30,000
2. What is Balboas AE&P at the end of the year (after taking into account the effect of the distribution)?
   1. $80,000
   2. $55,000
   3. $40,000
   4. $65,000
   5. $50,000

Please provide a brief explanation