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At the beginning of the year, Oak Corp. (an S corporation) had $50,000 in its AAA, $30,000 of earnings and profits from prior C corporation years.
At the beginning of the year, Oak Corp. (an S corporation) had $50,000 in its AAA, $30,000 of earnings and profits from prior C corporation years. During the year, Oak earned $25,000 of ordinary income and paid $100,000 in distributions to its shareholders. Assume that Ethan owns 25% of Oak Corp. his basis in Oak Corp. stock at the beginning of the year is $5,000, and his share of the distribution was $25,000. How much income does Ethan recognize this year from these transactions?$0.$6,250.$7,500.$20,000.None of the above.Can you explain this Feedback:$6,250 (share of ordinary income: $25,000 x 25%) + $7,500 ($18,750 AAA distribution [[$50,000 + $25,000] x 25%] in excess of pre-distribution stock basis of $11,250) + $6,250 (distribution treated as dividend: $25,000 x 25%) = $20,000.
