Exercise $18-24($Algorithmic$)($L$0.5)$

On January $2,$ Chaz transfers cash of $$67,800$ to a newly formed corporation for $100\%$ of the stock. In its initial year, the corporation has net income of $$16,950.$ The income is credited to its earnings and profits account. The corporation distributes $$5,085$ to Chaz.

If an amount is zero, enter $"0".$

a$.$ How do Chaz and the corporation treat the $$5,085$ distribution?

Chaz has a of $ and the corporation has a deduction of $

b$.$ Assume instead that Chaz transfers to the corporation cash of $$33,900$ for stock and cash of $$33,900$ for a note of the same amount. The note is payable in equal annual installments of $$3,390$ and bears interest at the rate of $6\%.$ No distributions are made during the year to Chaz. However, at the end of the year, the corporation pays an amount to meet the loan obligation$($i$.$e$.,$ the annual $$3,390$ principal payment plus the interest due$).$

Determine the total amount of the payment and its tax treatment to Chaz and the corporation.

The corporate payment to Chaz totals $

Chaz has interest of $ and a note repayment of $q$

of which $ is taxable to Chaz. The

corporation has a deduction of $

$($CHAZ HAS A $($return of capital or taxable dividend$)$ for blank part $!$