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 ending OAA balance is calculated by adding tax-exempt interest income ($5,300) and nontaxable life insurance proceeds ($5,100), which are the only items affecting the OAA. Thus, $5,300 + $5,100 = $10,400. However, the life insurance premiums paid ($2,800) are subtracted, resulting in an ending OAA balance of $7,600.

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