Suppose at the beginning of 2016, Jamaal'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 2016, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. What is Jamaal's stock and debt basis at the end of 2016?
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

Question

Quizplus · Accepted Answer

Jamaal's stock basis at the end of 2016 can be calculated as follows:
Beginning stock basis = $0
Add: Jamaal's contribution = $8,000
Add: Jamaal's share of the S corporation's income = 40% x $4,000 = $1,600
Total stock basis = $9,600
Jamaal's debt basis at the end of 2016 can be calculated as follows:
Beginning debt basis = $0
Add: Jamaal's loan to the S corporation = $10,000
Less: Jamaal's share of the S corporation's loss = ($5,000) (Note: Suspended losses increase debt basis)
Total debt basis = $5,000
Therefore, the correct answer is A) $0 stock basis; $4,600 debt basis.

Suppose at the Beginning of 2016, Jamaal's Basis in His