Assume the following year 2 income statement for Philpot Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Philpot's earnings and profits at the end of year 1 were $10,000. Mark is Philpot's sole shareholder, and he has a stock basis of $40,000 at the end of year 1.

What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Mark recognize on the year 2.

Sales revenue $150,000

Cost of Goods Sold (35,000)

Operating expenses (118,000)

Interest Income 10,000

Net income $7,000

Distribution to Mark $6,000