Problem 12-26 (LO. 6, 7)

On January 1, 2022, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of Kinney's stock. Kinney's nonseparately stated ordinary income for the year is $5,000.

Kinney distributes $6,000 to each shareholder on July 1, and it distributes another $3,000 to each shareholder on December 21.

How are the shareholders taxed on the distributions? Ignore the 20% QBI deduction.

Round any division to five decimal places. If required, round final answers to the nearest dollar.

Erin and Frank each report $______ dividend income for the July 1 distribution and $_______each for the December 21 distribution. Assuming that the shareholders have sufficient basis in their stock, Erin and Frank each receive a tax-free $________ distribution from AAA.