Sammy buys a 20% interest in Duvall Corporation paying $100,000 cash on January 1,2012.During 2012,Duvall Corporation reports a loss of $60,000 and pays cash dividends to shareholders of $5,000.For 2013,Duvall Corporation has income of $200,000 and pays cash dividends of $40,000.If Duvall Company is organized as an S Corporation,Sammy's basis in the Duvall Corporation stock at the end of 2013 is:

Question

Quizplus · Accepted Answer

Firstly, for 2012, Sammy's share of the loss in Duvall Corporation is $60,000 x 20% = $12,000. This brings his basis to $100,000 - $12,000 = $88,000.
Secondly, for 2013, Sammy's share of the income in Duvall Corporation is $200,000 x 20% = $40,000. This brings his basis to $88,000 + $40,000 = $128,000.
Lastly, the cash dividends paid to Sammy in 2012 and 2013 do not affect his basis. Therefore, Sammy's basis in the Duvall Corporation stock at the end of 2013 is $119,000 (option D).

Sammy Buys a 20% Interest in Duvall Corporation Paying $100,000