On January 2, Chaz transfers cash of $146,200 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $36,550. The income is credited to its earnings and profits account. The corporation distributes $10,965 to Chaz.

If an amount is zero, enter "0".

a. How do Chaz and the corporation treat the $10,965 distribution? Chaz has a

return of taxable dividend of $___________ and the corporation has a deduction of $_____________.

b. Assume instead that Chaz transfers to the corporation cash of $73,100 for stock and cash of $73,100 for a note of the same amount. The note is payable in equal annual installments of $7,310 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 $7,310 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 $______________