J and H Each Have Always Owned 50 Percent of the Stock

question 3

Multiple Choice

J and H each have always owned 50 percent of the stock of a calendar-year S corporation that was previously operated as a C corporation.Accounts at the beginning of the current year are shown below: $\begin{array} { l }&\text { Corporate Accounts }&\text { Stock Basis }\\A A A P T I&A E \& P&OAA&J&H\\10,000&\$8,000&\$1,200&0&\$15,000&\$10,000\end{array}$
During the year, operations show tax-exempt interest income of $5,000, net ordinary income of $20,000, and cash distributions of $40,000.What are J and H's stock basis at the end of the year?

• A)J = $10,400 H = $5,400
• B)J = $ 5,400 H = $ 400
• C)J = $8,100H = $3,100
• D)J = $ 6,700 H = $1,700

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