If an S Corp officer (who is already taking payroll at a reasonable comp rate) takes distributions/dividends, this would reduce the equity on the Balance sheet and not hit the P&L, right? So what is the benefit of the distribution?

Does it also reduce their basis on the K-1?

What if dividends are also paid to someone who invested in the S Corp and said dividends are only to be paid for a year or two. Do those investors also get a K-1 for their 3% of profit and how would I enter that on the K-1?