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

question 79

Multiple Choice

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

• A) $0 stock basis; $8,000 debt basis.
• B) $0 stock basis; $10,000 debt basis.
• C) $5,000 stock basis; $10,000 debt basis.
• D) $5,000 stock basis; $3,000 debt basis.
• E) None of these.

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Definitions:

Liabilities

Financial obligations or debts owed by a business or individual to external parties or entities.

Stockholders' Equity

The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings, reflecting the residual assets of the company that would be returned to shareholders if all assets were liquidated and all debts paid.

Increase Assets

Enhancing the value of a company's resources or acquiring new physical, financial, or intangible properties that can provide economic benefits.

Decrease Assets

The reduction in the value or amount of the resources owned by a company, which can result from sales, disposal, or depreciation.