Problem 12-28 (Algorithmic) (LO. 6)

On January 1, 2017, Kinney, Inc., an S corporation, reports $34,400 of accumulated E & P and a balance of $86,000 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 $43,000.

Kinney distributes $51,600 to each shareholder on July 1, and it distributes another $25,800 to each shareholder on December 21. How are the shareholders taxed on the distributions?

Do not round intermediate computations. If required, round your final answer 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, both Erin and Frank each receive a tax-free $______________ distribution from AAA.