77.At the beginning of 2015, Jerry\'s basis in his S corporation stock is $1,000

Question

77.At the beginning of 2015, Jerry's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2015, Jerry's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. What is Jerry's stock and debt basis after these transactions?

A. $0 stock basis; $8,000 debt basis.

B. $0 stock basis; $10,000 debt basis.

C. $5,000 stock basis; $10,000 debt basis.

D. $5,000 stock basis; $3,000 debt basis.

E. None of these

Explanation / Answer

Answer would be Option B i.e. $0 stock basis; $10,000 debt basis.

Explanation :

- No change in debt basis occurs becasue of distributions.

- Stock Basis = $1,000 (original stock basis) + $4,000 ordinary income - $7,000 distribution = $0 stock basis

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