Question

Shadow Inc. is an S corporation with a prior history as a regular corporation. At the beginning of the year, the company had AAA of $230,000 and E&P of $170,000. Schedule K of the company's Form 1120S for the current year reported the following: Ordinary business income (loss) (page 1, line 21) (118,000) Interest income 12,600 Net section 1231 gain (loss) 68,750 Charitable contributions (6,000) Tax-exempt interest income 5,200 Nondeductible expenses (1,625) Distributions to shareholders 24,000 What is the balance in the company's AAA account at the beginning of next year? (Assume the company did not elect to source distributions from E&P first)?

Answer 1

Particulars	Amount ($)	Amount ($)
Opening AAA balance	230,000.00
Add/ (Less): Net profit or loss (note 1)	(29,825.00)
	200,175.00
Less: Distributions to the shareholders	24,000.00
Closing balance in AAA		176,175.00

Thus, balance in company’s AAA account at the beginning of the next year would be $176, 175.00 as calculated in the table above.

Note 1: Profit /(Loss) of the current year to be added to AAA
Ordinary business loss	(118,000.00)
Add: Net section gain	68,750.00
	(49,250.00)
Add: interest income	12,600.00
	(36,650.00)
Add: Tax exempt interest income	5,200.00
	(31,450.00)
Add: Non-deductible expenses	1,625.00
	(29,825.00)