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. Johnstones earnings and profits at the end of year 1 were $13,250. Marcus is Johnstones sole shareholder, and he has a stock basis of $52,500 at the end of year 1.

Johnstone Corporation
Income Statement
December 31, Year 2
	Year 2
	(S Corporation)
Sales revenue	$	200,000
Cost of goods sold		(47,500	)
Salary to owners		(72,500	)
Employee wages		(63,000	)
Depreciation expense		(16,500	)
Miscellaneous expenses		(5,250	)
Interest income		14,750
Overall net income	$	10,000

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.)

Problem 22-69 Part a (Algo)

a. Johnstone distributed $8,500 to Marcus in year 2.