Ian Contributes $9,000 in Exchange for a 30 Percent Interest

question 60

Multiple Choice

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation.For 2014,the corporation reported a total loss of $35,000 and made no cash distributions.For 2015,the corporation reported net income of $45,000 and made a cash distribution to the shareholders.Ian received $5,000 of this cash distribution in 2015.Ian is in the 28% marginal tax bracket in both 2014 and 2015.How much income tax did Ian save for 2014 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2015?

• A)zero tax savings in 2014 and $750 tax in 2015
• B)zero tax savings in 2014 and $3,360 tax in 2015
• C)$2,520 tax savings in 2014 and $3,360 tax in 2015
• D)$2,520 tax savings in 2014 and $2,550 tax in 2015
• E)$2,940 tax savings in 2014 and $3,780 tax in 2015

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Definitions:

Common Stock Dividend

A portion of a company's earnings distributed to shareholders of its common stock, typically in the form of cash or additional shares.

Common Shares Outstanding

The total number of shares of a company that are owned by shareholders, excluding shares owned by the company itself.

Treasury Stock

Shares previously counted among a company's outstanding shares but were later bought back by the business.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer.