This is a tax question for an accounting class.

CSU, Inc., is a calendar year S corporation. CSUs Form 1120S shows nonseparately stated ordinary income of $120,000 for the year. Taewon owns 30% of the CSU stock throughout the year. The following information is obtained from the corporate records.

Tax-exempt interest income $4,500

Salary paid to Taewon (78,000)

Charitable contributions (9,000)

Dividends received from a non-U.S. corporation 7,500

Short-term capital loss (9,000)

Depreciation recapture income 16,500

Refund of prior state income taxes 7,500

Cost of goods sold ($108,000)

Long-term capital loss (10,500)

Administrative expenses (27,000)

Long-term capital gain 21,000

Selling expenses (16,500)

Taewons beginning stock basis 48,000

Taewons additional stock purchases 13,500

Beginning AAA 46,500

Taewons loan to corporation 30,000

a. Assume all facts remain the same and CSU distributes $400,000 total during the tax year to all shareholders proportionately. Show the effect, if any, of the distribution on Taewons stock basis and ending AAA.

b. Assume all facts remain the same and CSU had previously been a C corporation and had 60,000 of E&P. Show the effect, if any, of the distribution on Taewons stock basis, ending AAA, ending E&P. Show also the taxability, if any, of the distribution to Taewon. HINT: calculate the allocation of AAA to Taewon for distribution computations, even though AAA is a corporate account.