Suppose at the Beginning of 2018, Jamaal's Basis in His

question 54

Multiple Choice

Suppose at the beginning of 2018, 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 a $5,000 suspended loss from the S corporation. In 2018, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

• A) $4,000 income.
• B) $1,600 income.
• C) $1,000 loss.
• D) $3,400 loss.
• E) None of the choices are correct.

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Definitions:

Factory Overhead

Factory overhead refers to all indirect costs associated with manufacturing, excluding direct materials and direct labor expenses.

Direct Labor Hours

The total hours worked by employees directly involved in the production process.

Predetermined Factory Overhead Rate

A rate calculated before a period begins, used to allocate estimated overhead costs to individual units of production based on a specific activity base.

Estimated Activity Base

A projection or forecast used in budgeting and accounting to allocate costs based on predicted levels of activity such as hours worked or units produced.