Suppose That at the Beginning of 2020 Jamaal's Basis in His

question 4

Multiple Choice

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $16,500 loan he made to the S corporation, and he has a $11,500 suspended loss from the S corporation. In 2020, Jamaal contributed $14,500 to the S corporation, and the S corporation had ordinary income of $10,500. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

• A)$10,500 income
• B)$4,200 income
• C)$1,000 loss
• D)$7,300 loss
• E)None of the choices are correct.

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Definitions:

Dollar Exposure

The risk associated with changes in the value of the U.S. dollar compared to other currencies in international finance.

S&P 500 Index

A market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S.

Put Option

A financial derivative that gives the holder the right, but not the obligation, to sell a specific quantity of an underlying asset at a set price within a specified time.

American Call-Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other instruments at a specified price within a specific time period.