1. Which of the following does not violate S corporation status?

Question options:

Having a C corporation as a shareholder Issuing preferred stock Issuing two classes of common stock that have the same percentage of ownership and profit and loss sharing but differ as to voting rights. Having a non-resident alien as a shareholder

2. Net operating loss carryforwards, capital loss carryforwards, and certain tax credits accrued by an S corporation during its C corporation years cannot be used to offset S corporation earnings unless those earnings occur because of the built-in gains tax.

Question options:

True False

3. Cynthia and Bonnie are the only shareholders of an S corporation. They each receive a cash distribution of $10,000. Each has a basis of $40,000 in her corporate stock. The balance of the S corporation's AAA is $50,000 and the S corporation has a small balance of $10,000 in an accumulated earnings and profits account from its C corporation years.

Which of the following is a correct statement about the tax treatment of this distribution?

Question options:

Each of them has a non-taxable return of capital and a basis in stock afterward of $30,000. The balance in the AAA account after distribution is $30,000, Each of them has a dividend income of $5,000, a non-taxable return of capital $5,000, and a basis in stock afterward of $35,000. The balance in the AAA account after distribution is $40,000, Each of them has a dividend income of $10,000 and a basis in stock afterward of $40,000. The balance in the AAA account after distribution is $40,000, none of the above