At the end of the year, before distributions, Bombay (an S corporation) has an accumulated adjustments account balance of $15,200 and accumulated E&P of $20,250 from a previous year as a C corporation. During the year, Nicolette (a 40 percent shareholder) received a $20,250 distribution (the remaining shareholders received $30,375 in distributions). Assume her stock basis is $40,500 after considering her share of Bombays income for the year but before considering the effects of the distribution.

Required:

What is the amount and character of gain Nicolette must recognize from the distribution?

What is her basis in her Bombay stock at the end of the year?