1. Which of the following statement is correct?

a. The accumulated adjustments account is essentially the accumulated, undistributed earnings and profits an an S corporation

b. Reduction in the accumulated adjustments account follow more stringent ordering rules than increases in the accumulated adjustments account

c. If there is an overall net decrease in the accumulated adjustments account, then any distribution deduction is applied before any net negative adjustment

d. All of the above

2. An S corporation makes distributions to its shareholders. The S corporation does not have any accumulated earnings and profits from operation as a C corporation, The distributions are first allocated to:

a. The AAA account and treated as taxable dividends

b. Shareholders” bases in stock and are treated as a nontaxable return of capital

c. Shareholder’s bases inn stock and treated as a capital gain or loss

d. Shareholder’s bases in debt in debt and treated as a nontaxable repayment of the debt