Suppose That at the Beginning of 2019 Jamaal's Basis in His

question 94

Multiple Choice

Suppose that at the beginning of 2019 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 he has a $5,000 suspended loss from the S corporation.In 2019, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000.Assume that Jamaal owns 40 percent of the S corporation.What is Jamaal's stock and debt basis at the end of 2019?

• 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 the choices are correct.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs of a product or service, highlighting how much contribution towards fixed costs and profit is made per unit sold.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and sales commissions.

Gross Margin

Gross margin is a company's net sales revenue minus its cost of goods sold, representing the efficiency with which it can produce and sell its products for a profit.

Scattergraph Method

A graphical technique used to identify the relationship between two variables, often used in cost analysis to distinguish between fixed and variable costs.