Hector Formed H Corporation as a C Corporation at the Beginning

question 109

Essay

Hector formed H Corporation as a C corporation at the beginning of 2014. Hector was the sole shareholder of H Corporation. H Corp. reported 2014 taxable income (and earnings and profits) of $200,000. At the beginning of 2015, H Corp. elected S corporation status. During 2015, 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 2015?

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Definitions:

Total Product Curve

This curve graphically represents the total output produced by a firm in relation to varying levels of a single input, assuming all other inputs are held constant.

Total Utility

Denotes the total satisfaction a consumer derives from consuming a specific quantity of goods or services.

Marginal Utility

The additional satisfaction or benefit gained from consuming one more unit of a good or service.

Process Innovation

Innovations that involve a new or significantly improved production or delivery method, enhancing efficiency or quality.