Identify Which of the Following Statements Is False

question 57

Multiple Choice

Identify which of the following statements is false.

• A) A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss- passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.
• B) Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the at- risk and passive activity limitations, Randy can deduct the loss in full.
• C) A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.
• D) Debt basis is restored before stock basis.

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Definitions:

Least Possible Cost

The minimum expenditure necessary to achieve a specific outcome or procure a good or service, often used in the context of production or economic theory.

Positive Economics

The branch of economics that focuses on objective analysis and facts to describe how economies actually work.

Efficient Market

A market in which all available information is fully and immediately reflected in asset prices, thus making it impossible to consistently achieve higher returns on investment than average market returns on a risk-adjusted basis.

Profit Opportunities

Situations where businesses can generate higher returns on investment than the market average.