3. LO.4 Carlota and Dave formed an S corporation; Carlota owns 75% of the outstanding shares, and Dave owns the rest. When the entity’s AAA balance is

$1,000,000, it distributes an asset to each shareholder; the basis of each asset to the corporation is $45,000. Carlota’s asset is worth $90,000, and Dave’s is worth $50,000.

a. How much gain, if any, does the the corporation recognize as a result of the distribution?

b. By how much, if any, does the distribution increase Dave’s gross income?

c. By how much, if any, does the distribution increase Carlota’s gross income?