Q Inc. is owned by L and R. Q Inc. is an S corporation, but in prior years it was a regular corporation and it has a remaining E&P balance from those prior years of $60,000. The corporation's AAA balance at the beginning of the year was $35,000, and it reported taxable income of $42,000.At the beginning of the year, L's tax basis in her Q Inc. stock was $25,000. R's tax basis in his Q Inc. stock (also at the beginning of the year) was only $10,000.

1. The corporation distributed $100,000 to its two shareholders this year ($50,000 each).What portion of the distribution will be taxable to the shareholders as dividend income?
2. Will either shareholder recognize any capital gain on receipt of the distribution? What will be their remaining tax basis in their Q shares after accounting for the distribution?
3. In total, how much income and/or capital gain will each shareholder report on his or her individual income tax returns this year in connection with their investments in Q Inc.?