On January 2, Chaz transfers cash of $60,000 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $15,000. The income is credited to its earnings and profits account. The corporation distributes $5,000 to Chaz.

If an amount is zero, enter "0".

a. How do Chaz and the corporation treat the $5,000 distribution? Chaz has a taxable dividend of $5000 and the corporation has a deduction of $0.

b. Assume instead that Chaz transfers to the corporation cash of $30,000 for stock and cash of $30,000 for a note of the same amount. The note is payable in equal annual installments of $3,000 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 $3,000 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 $1800 and a note repayment of $3000 of which $1800 is taxable to Chaz. The corporation has a deduction of $1800.