Parker Is a 100% Shareholder of Johnson Corp

question 29

Essay

Parker is a 100% shareholder of Johnson Corp. (an S corporation). At the beginning of 2018, Parker's basis in his Johnson Corp. stock was $14,000. During 2018, Parker loaned $20,000 to Johnson Corp. and Johnson Corp. reported a $25,000 ordinary business loss and no separately stated items. In 2019, 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 2018?
b. What is Parker's stock and debt basis at the end of 2018?
c. What is Parker's stock and debt basis at the end of 2019?

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Definitions:

Price Decrease

A reduction in the cost of goods or services, often resulting from factors like increased competition, lower production costs, or decreased demand.

Consumption

The use of goods and services by households.

Northeasterly

In or relating to the direction that is between north and east; often used to describe wind or weather patterns.

Indifference Curves

Graphical representations in economics that show combinations of two goods among which a consumer is indifferent, meaning they have no preference for one combination over another.