Hector Formed H Corporation as a C Corporation at the Beginning

question 51

Essay

Hector formed H Corporation as a C corporation at the beginning of 2019.Hector was the sole shareholder of H Corporation.H Corporation reported 2019 taxable income (and earnings and profits)of $200,000.At the beginning of 2020, H Corporation elected S corporation status.During 2020, H Corporation had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income.H Corporation also distributed $15,000 to Hector.What is the amount and character of gain/income Hector must recognize on the distribution (if any)? What is the balance in H Corporation's accumulated adjustments account (AAA)at the end of 2020?

---

Definitions:

Net Sales

The amount of sales generated by a company after deducting returns, allowances for damaged or missing goods, and discounts.

Gross Profit

The financial metric representing the difference between revenue and the cost of goods sold before deducting overhead, payroll, taxation, and interest payments.

Inventory Value

The total cost or market value of all the goods and products held by a company intended for sale.

Replacement Cost

The current cost of replacing an asset with another of similar kind and same utility without considering depreciation.