Suppose at the Beginning of 2014, Jamaal's Basis in His

question 20

Multiple Choice

Suppose at the beginning of 2014, 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 2014, 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 these.

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Definitions:

Long-Run Equilibrium

A state in economics where all factors of production and costs are variable, leading to a situation where firms are earning normal profits and no new firms enter or exit the industry.

Plaster

A building material used for coating, protecting, and decorating walls and ceilings, made from lime, sand, and water.

Labor

The involvement of human physical exertion and cognitive efforts in the manufacture of goods and services.

Interest Rate

The percentage charged on borrowed money or paid on invested capital, representing the cost of borrowing or the gain on investing.