If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance? $$\begin{array} { l r }
\text { Depreciation recapture income } & \$ 21,000 \
\text { Payroll tax penalty } & 4,200 \
\text { Tax-exempt interest income } & 5,300 \
\text { Nontaxable life insurance proceeds } & 5,100 \
\text { Life insurance premiums paid (nondeductible) } & 2,800
\end{array}$$ ?

Question

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance? $$\begin{array} { l r } 
\text { Depreciation recapture income } & \$ 21,000 \
\text { Payroll tax penalty } & 4,200 \
\text { Tax-exempt interest income } & 5,300 \
\text { Nontaxable life insurance proceeds } & 5,100 \
\text { Life insurance premiums paid (nondeductible) } & 2,800
\end{array}$$ ?

Quizplus · Accepted Answer

The beginning balance in OAA is zero, so all increases in OAA will be added and all decreases will be subtracted from zero. 
- Stock is issued for $6,000, which increases OAA to $6,000. 
- The corporation earns $2,500 in revenue, which increases OAA to $8,500. 
- Expenses of $1,900 are subtracted from revenue, which decreases OAA to $6,600. 
- The corporation declares and pays dividends for $1,000, which decreases OAA to $5,600. 
- Finally, a loss of $1,000 is incurred, which decreases OAA to $4,600.

Therefore, the ending balance in OAA is $4,600. None of the other options are correct.

If an S Corporation's Beginning Balance in OAA Is Zero