The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with a stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply.) Use a 34 percent corporate tax rate in this problem During the current year, X accrued income and expense as set forth :

Gross income from business $500

Dividends on AT&T stock (consider section 243) $100

Interest on municipal bonds (section103) $100

Capital gain $100

Total $800

Deducible section162 (a)(1) business expenses $430

Noncapital expenses not deductible under section162 (e) $90

Capital losses (section1211 (a)) $146

Total $666

Net $134. X has always been an S corporation. Alternatively, X has E&P of $100 from years before it was an S corporation and nothing in its AAA from prior S years. The $100 is capital gain from the sale of stock held for investment and the $500 gross income from business is also gross receipts from business. Assume the stock for investment was acquired while an S corporation. Assume other facts remaining the same including the $100 distribution to each shareholder. Discuss the following, showing calculations where appropriate. AAA and E&P and basis.( Addition to each shareholder's stock basis is 67 and Addition to each shareholder's AAA is 17). Please show you calculation step by step. Thank you.