S Corporations:Distributions 1. Blake Enterprises, Inc. was incorporated in 2008 and elected S status for 2008. Gainer, Inc. was incorporated in 1995 and elected S status in 2008. Both companies use a calendar tax year. Blake and Gainer each make a cash distribution of $300,000 to its sole shareholder. a) Determine the character of the distribution made by each company. computed income passed through to

Shareholder's basis in stock at 1/1/2008 $ 50,000

Separately stated and non-separately computed income passed through to shareholder for 2008 (no tax exempt interest or non-deductible items) 175,000

Accumulated E & P of Gainer, Inc $ 70,000 c) If the shareholder is in the 30% bracket for ordinary income and 15% for dividends and capital gains, determine the tax generated by this distribution.

Phase2: Activity6-1-S Corporations:Distributions, Continued 2. What is Marjorie's ending balance for her stock basis, and what is MargeCo's ending AAA and accumulated E&P balances? Complete the following chart to determine these results. During the tax year, Marjorie received a $15,000 distribution from the S corporation, and her share of this year's ordinary loss was $19,000. Marjorie's share of the S corporation's longterm capital gain amounted to $11,000.

	AAA	Stock Basis	Accum. E&P	OAA
Beginning Balance	$2,000	$12,000	$5,000	$1,500
Ending Balance