Question

Hanover, Inc., is an S corporation. Shawn, the sole shareholder, has a stock basis of 10,000...

Hanover, Inc., is an S corporation. Shawn, the sole shareholder, has a stock basis of 10,000 at January 1, 20X1, and an accumulated adjustments account (AAA) balance of $0. Hanover, Inc., has never been a C corporation. For 20X1, the following takes place regarding Hanover, Inc.:

Taxable income $40,000

Tax-exempt income $5,000

Capital gain $8,000

Expenses applicable to tax-exempt income $1,000

Charitable contributions $2,000

Disallowed 50% of meal & entertainment expenses $500

Cash distribution to Shawn $20,000

What is the AAA of Hanover, Inc., at December 31,20X1?

A. $10,500

B. $17,500

C. $25,500

D. $32,000

Homework Answers

Answer #1

Ans: )

C. $ 25,500

According the provisions of the U.S tax laws, the Accumulated Adjustments Account (AAA) of Hanover, Inc. at December 31 will be computed as follows:

Opening Balance $ 0
Add:

Taxable Income

$ 40,000

Capital Gains

$ 8,000 $ 48,000
Less:

Charitable Contributions

$ (2,000)
Disallowed meal & entertainment expenses $(500)
Cash distribution to Shawn $(20,000) $(22,500)
Balance as on December 31    $ 25,500
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