On January 1, 2013, 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 2013 salary was $70,000 and his pro rata share of Sterling's 2013 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, 2014.

Question

Quizplus · Accepted Answer

Conrad's basis in his Sterling stock is increased by his pro rata share of Sterling's income and decreased by his distribution. Thus, his basis on January 1, 2014, is $15,000 (initial contribution) + $16,800 (pro rata share of income) - $9,000 (distribution) = $22,800.

On January 1, 2013, Conrad Nelson Contributed $15,000 Cash in Exchange