On January 1, 2012, Conrad Nelson contributed $15,000 cash in exchange for 50 shares of stock in Sterling Inc., an S corporation. Sterling employs Conrad as its director of marketing. Conrad's 2012 salary was $70,000 and his pro rata share of Sterling's 2012 ordinary business income was $16,800. During the year, Conrad received a $9,000 cash distribution with respect to his Sterling stock. Compute Conrad's basis in his Sterling stock on January 1, 2013.

Question

Quizplus · Accepted Answer

Conrad's basis in his Sterling stock at the beginning of 2012 is $15,000 because that is the amount he paid for the stock.

His basis at the end of 2012 is calculated as follows:

Beginning Basis: $15,000 
Added: Share of 2012 ordinary business income ($16,800) 
Subtracted: Distributions received ($9,000)

Ending Basis: $22,800 ($15,000 + $16,800 - $9,000)

Therefore, Conrad's basis in his Sterling stock on January 1, 2013, is $22,800.

On January 1, 2012, Conrad Nelson Contributed $15,000 Cash in Exchange