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Assume the following year $2$ income statement for Johnstone Corporation, which was a C corporation in year $1$ and

elected to be taxed as an S corporation beginning in year $2.$ Johnstone's earnings and profits at the end of year $1$ were

$$10,000.$ Marcus is Johnstone's sole shareholder, and he has a stock basis of $$40,000$ at the end of year $1.$

What is Johnstone's accumulated adjustments account at the end of year $2,$ and what amount of dividend income does

Marcus recognize on the year $2$ distribution in each of the following alternative scenarios?

Note: Leave no answer blank. Enter zero if applicable.

a$.$ Johnstone distributed $$6,000$ to Marcus in year $2.$Assume the following year $2$ income statement for Johnstone Corporation, which was a C corporation in year $1$ and elected to be taxed as an S corporation beginning in year $2.$ Johnstone's earnings and profits at the end of year $1$ were $$10,000.$ Marcus is Johnstone's sole shareholder, and he has a stock basis of $$40,000$ at the end of year $1.$

Johnstone Corporation

Income Statement

December $31,$ Year $2$

Year $2($S Corporation$)$

Sales revenue $ $150,000$

Cost of goods sold $(35,000)$

Salary to owners $(60,000)$

Employee wages $(50,000)$

Depreciation expense $(4,000)$

Miscellaneous expenses $(4,000)$

Interest income $10,000$

Overall net income $ $7,000$

What is Johnstone's accumulated adjustments account at the end of year $2,$ and what amount of dividend income does Marcus recognize on the year $2$ distribution in each of the following alternative scenarios?

Note: Leave no answer blank. Enter zero if applicable.