Tony Is the 100% Shareholder of a Corporation Established Five

question 118

Multiple Choice

Tony is the 100% shareholder of a corporation established five years ago.It has always been an S corporation.After adjustment for this year's corporate income,but before taking distributions into account,Tony has a $50,000 stock basis.The corporation pays Tony a $40,000 cash distribution.As a result of this distribution,Tony will have an ending stock basis and recognized income of

• A) \[\begin{array} { | l | l | }
• \hline \text { Income } & \\
• \text { recognized } & \text { Stock basis } \\
• \hline \$ 0 & \$ 10,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline \text { Income } & \\
• \text { recognized } & \text { Stock basis } \\
• \hline \$ 40,000 & \$ 50,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { Income } & \\
• \text { recognized } & \text { Stock basis } \\
• \hline \$ 0 & \$ 40,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { Income } & \\
• \text { recognized } & \text { Stock basis } \\
• \hline \$ 40,000 & \$ 10,000 \\
• \hline
• \end{array}\]

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