Cynthia and Bonnie are the only shareholders of an S corporation. They each receive a cash distribution of $10,000. Each has a basis of $40,000 in her corporate stock. The balance of the S corporation's AAA is $50,000 and the S corporation has a small balance of $10,000 in an accumulated earnings and profits account from its C corporation years.

Which of the following is a correct statement about the tax treatment of this distribution?

Question options:

	a. Each of them has a non-taxable return of capital and a basis in stock afterward of $30,000. The balance in the AAA account after distribution is $30,000,
	b. Each of them has a dividend income of $10,000 and a basis in stock afterward of $40,000. The balance in the AAA account after distribution is $40,000,
	c. none of the above