1. On January 2, Chaz transfers cash of $143,400 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $35,850. The income is credited to its earnings and profits account. The corporation distributes $10,755 to Chaz.

   If an amount is zero, enter "0".

   a. How do Chaz and the corporation treat the $10,755 distribution? Chaz has a____of $______ and the corporation has a deduction of $_____

   b. Assume instead that Chaz transfers to the corporation cash of $71,700 for stock and cash of $71,700 for a note of the same amount. The note is payable in equal annual installments of $7,170 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 $7,170 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 $____ of which $____is taxable to Chaz. The corporation has a deduction of $____ $ of which $ is taxable to Chaz. The corporation has a deduction of $.