73.Suppose at the beginning of 2015, Jerry\'s basis in his S corporation stock i

Question

73.Suppose at the beginning of 2015, Jerry's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2015, Jerry contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jerry owns 40% of the S corporation. What is Jerry's stock and debt basis at the end of 2015?

A. $0 stock basis; $4,600 debt basis.

B. $0 stock basis; $9,600 debt basis.

C. $4,600 stock basis; $0 debt basis.

D. $9,600 stock basis; $0 debt basis.

E. None of these.

Explanation / Answer

Answer is option (A) $0 Stock basis , $4600 debt Basis Jerry Debt Basis Amount in $ Beginning balance 0 Contribution made 8000 Share of Corporation income (4000*0.40) 1600 Less: Suspended Loss -5000 basis at end of the year 4600 Jerry Debt Basis not restored to its outstanding debt amount ($10,000) , Jerry Stock Basis remains Zero.

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