Hector Formed H Corporation as a C Corporation at the Beginning

question 145

Essay

Hector formed H Corporation as a C corporation at the beginning of 2020. Hector was the sole shareholder of H Corporation. H Corporation reported 2020 taxable income (and earnings and profits)of $200,000. At the beginning of 2021, H Corporation elected S corporation status. During 2021, 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 2021?

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Definitions:

Consumption Possibilities

The range of goods and services that can be consumed given a consumer's income and prevailing prices.

International Trade

The exchange of goods and services across international boundaries or territories, involving the import and export of products.

Opportunity Cost

The worth of the best alternative that is given up in order to make a choice.

Imports

Products or services imported from other countries for sale or consumption.