Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 andelected to be taxed as an S corporation beginning in year 2. Johnstone's earnings and profits at the end of year 1 were$11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1.Johnstone CorporationIncome StatementDecember 31, Year 2Year 2 (SCorporation)$ 174,000( 41,000)( 66,000)( 56,500)(10,000)( 4,600)12,540$ 8,440Sales r evenueCost of goods soldSalary to ownersEmployee wagesDepreciation expenseMiscellaneous expensesInterest incomeOverall net incomeWhat is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income doesMarcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enterzero if applicable.)b. Johnstone distributed $11,200 to Marcus in year 2.Accumulated adjustments account$Dividend income

Answered: What is Johnstone's accumulated…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and
elected to be taxed as an S corporation beginning in year 2. Johnstone's earnings and profits at the end of year 1 were
$11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1.
Johnstone Corporation
Income Statement
December 31, Year 2
Year 2 (S
Corporation)
$ 174,000
( 41,000)
( 66,000)
( 56,500)
(10,000)
( 4,600)
12,540
$ 8,440
Sales r evenue
Cost of goods sold
Salary to owners
Employee wages
Depreciation expense
Miscellaneous expenses
Interest income
Overall net income
What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does
Marcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enter
zero if applicable.)
b. Johnstone distributed $11,200 to Marcus in year 2.
Accumulated adjustments account
$
Dividend income

Expert Solution

Step 1

Dividend income is the income which a stakeholder who is also known as the shareholder receives from the company on the investment made by him or her into the corporation. It is a return or income to the shareholder.

Given in the question:

Johnstone Corporation has Earnings and profits at the end of year 1 = $11,560

Marcus is the sole shareholder and he has a stock basis of $46,000 at the end of year 1

Overall Net Income at the end of year 2 = $8,440

Interest Income for the year 2 = $12,540

Johnstone distributed $11,200 to Marcus in year 2

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