Tax my 529 qualified distribution and take AOTC for less than $4000

First, Turbo Tax told me my 19 yo daughter can't be claimed as a dependent because she make more than $4300. So, in her return she indicated she can't be claimed as a dependent on another return.

 

She received a 1098-T for $2722, paid 139 in books, for total of 2861, and is a beneficiary of a 529 plan for the qualified 2861 (1099-Q line 1 = $2861, line 2 = $1172). Entering this in TurboTax, it put the 529 money as taxable to take the AOTC.

 

1. Since the totals are less than the $4000 available for calculating the AOTC, is Turbo Tax correct in allowing her to tax the 529 to take the credit?

2. In other income, it shows $1114 instead of $2861 or $1171.  How does it determine this amount?

3. I thought books were allowed for the AOTC, but Turbo Tax did not include the books in its calculation.  I tried another tax software, and it included the books.  Which program is correct? 

4. Does the $1114 go in the Michigan return line that asks if the 529 amount was included in AGI?