Waters Corporation Is an S Corporation with Two Equal Shareholders

question 15

Multiple Choice

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense: $\begin{array}{llr} \text { Sales revenue} &\$500,000\\ \text {Interest income } &6,000\\ \text { Long-term capital gain } &10,000\\ \text {Cost of goods sold } &(250,000) \\ \text {Salary and wages } &(75,000) \\ \text { other operating expenses } &(55,000) \\\end{array}$

Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year, compute her adjusted tax basis in her partnership interest at the end of the year.

• A) $93,000
• B) $118,000
• C) $50,000
• D) $85,000

---

Definitions:

Market Shares

Represents the percentage of an industry's sales that a particular company controls.

Natural Monopoly

A market condition where a single firm can provide a good or service at a lower cost than any potential competitor, often due to economies of scale.

Economies of Scale

Economies of scale occur when increasing the production scale leads to a decrease in the long-term average costs, often due to more efficient use of inputs.

Exclusive Franchise

A legal agreement granting one party the sole right to sell or distribute a company's products or services in a particular market area.