[The following information applies to the questions displayed below.] 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 $10,000. Marcus is Johnstone's sole shareholder, and he has a stock basis of $40,000 at the end of year 1 . 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? Note: Leave no answer blank. Enter zero if applicable. c. Johnstone distributed $16,000 to Marcus in year 2
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