Hector Formed H Corporation as a C Corporation at the Beginning

question 55

Essay

Hector formed H Corporation as a C corporation at the beginning of 2018. Hector was the sole shareholder of H Corporation. H Corp. reported 2018 taxable income (and earnings and profits) of $200,000. At the beginning of 2019, H Corp. elected S corporation status. During 2019, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income. H Corp. 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 2019?

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Definitions:

Water-Soluble

Capable of dissolving in water, often referring to substances that can be easily absorbed or metabolized by the body or the environment.

Vitamin C

An essential nutrient and antioxidant found in certain foods that supports immune function, skin health, and wound healing, among other bodily functions.

Jejunum

The mid-portion and the majority of the small intestine.

Small Intestine

A long, coiled tube where most of the digestion and absorption of nutrients from food takes place, extending from the stomach to the large intestine.