Rocky Corporation,an S Corporation,reports the Following Results for the Current

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The Answer is The basis of the shareholder's stock is increased to $210,000 ($120,000 + $70,000 + $20,000 + $10,000 + $6,000 - $16,000)by Rocky's current year operations.
Rocky's AAA balance before any current year distributions is $160,000 ($80,000 + $70,000 + $20,000 + $6,000 - $16,000).$80,000 {[$100,000/($100,000 + $100,000)] × $160,000 = $80,000} of each distribution comes from Rocky's AAA and is tax-free because the $160,000 amount coming from AAA is less than the $210,000 basis of the Rocky stock.
The remaining $20,000 of each distribution comes from Rocky's accumulated E&P and is a taxable dividend.This portion of the distribution does not reduce the basis of the stock.The year-end accumulated E&P is $10,000.
In addition,Rocky has a $10,000 balance in its Other Adjustments Account from the current year tax-exempt income.This amount is not a separate earnings pool for distribution purposes,but is reflected in the shareholder's stock basis.
The basis of the Rocky stock is $50,000 at year-end ($210,000 - $160,000).

Rocky Corporation,an S Corporation,reports the Following Results for the Current

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