Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year. On July 1, she sells all of her stock to Francisco for $1,000,000. On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000. Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Francisco on December 1. Use the format below; to (1) determine how the distributions are taxed to Ashley and Francisco and (2)Ashleys recognized gain on the 7/1 sale to Francisco.

Current year Accumulated

E&P E&P Distributions

Ashleys Basis

Div. Inc. Ret. of Cap Basis Cap. Gains