Sammy buys a 20% interest in Duvall Corporation paying $100,000 cash on January 1,2016.During 2016,Duvall Corporation reports a loss of $60,000 and pays cash dividends to shareholders of $5,000.For 2017,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 2017 is:

Question

Sammy buys a 20% interest in Duvall Corporation paying $100,000 cash on January 1,2016.During 2016,Duvall Corporation reports a loss of $60,000 and pays cash dividends to shareholders of $5,000.For 2017,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 2017 is:
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Quizplus · Accepted Answer

Sammy's basis in the Duvall Corporation stock at the end of 2017 is $119,000. This is calculated as follows:Beginning basis: $100,000Loss for 2016: ($60,000) x 20% = ($12,000)Dividends for 2016: $5,000 x 20% = $1,000Income for 2017: $200,000 x 20% = $40,000Dividends for 2017: $40,000 x 20% = $8,000Ending basis: $100,000 - $12,000 + $1,000 + $40,000 + $8,000 = $119,000

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