Parker Is a 100% Shareholder of Johnson Corp

question 40

Essay

Parker is a 100% shareholder of Johnson Corp.(an S corporation).At the beginning of 2017,Parker's basis in his Johnson Corp.stock was $14,000.During 2017,Parker loaned $20,000 to Johnson Corp.and Johnson Corp.reported a $25,000 ordinary business loss and no separately stated items.In 2018,Johnson Corp.reported $8,000 of ordinary business income.
a.How much of the $25,000 ordinary loss allocated to Parker clears the tax basis hurdle for deductibility in 2017?
b.What is Parker's stock and debt basis at the end of 2017?
c.What is Parker's stock and debt basis at the end of 2018?

---

Definitions:

Bad Debts Expense

A non-cash expense that represents accounts receivable that a company no longer expects to collect, indicating customers are unlikely to pay their outstanding debts.

Allowance Method

An accounting technique used to estimate and account for potential uncollectible accounts receivable as an expense against current period income.

Bad Debts Expense

An expense recognized when it is judged that some accounts receivable cannot be collected, reflecting the cost of credit sales that will not turn into cash.

Allowance for Doubtful Accounts

A reserve account used to estimate the amount of receivables that may not be collectible.