Jeff Owns 50% of an S Corporation's Stock with a Basis

question 96

Essay

Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1. In addition, the S corporation owes Jeff $30,000 on January 1. The debt has a basis of $30,000 and is evidenced by a note. The S corporation reports an ordinary loss of $150,000 for the current year. The next year, it reports ordinary income of $20,000. On January 1 of the third year, the note is repaid. Due to the repayment of the note, Jeff must report what?

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Definitions:

Balance Sheet

A ledger entry detailing a business’s resources, debts, and equity ownership at a fixed point in time.

Adjustment

A modification made to an account or financial statement to correct an error or reflect new information.

Unearned Revenue

Money received by a company for goods or services that have yet to be delivered or provided.

Rental Payments

Periodic payments made by a lessee to a lessor for the use of a property, equipment, or other asset.