Shelley Owns a 25% Interest in a Qualifying S Corporation

question 41

Essay

Shelley owns a 25% interest in a qualifying S corporation.Shelley's basis in the stock was $15,000 at the beginning of the year.Shelley made no capital contributions and received no distributions during the year.Shelley loaned the S corporation $20,000 this year.The S corporation incurred a $160,000 ordinary loss this year.
a.What are the amounts of Shelley's deduction and carryover of the unused loss for the year?
b.What is the amount of Shelley's basis in the stock at the end of year one?
c.If the S Corporation earned net income of $200,000 in year two,what is the amount of Shelley's stock basis at the end of year two?

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Definitions:

Dow Jones Industrial Average (DJIA)

A stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States, representing a significant indicator of the market's overall health.

Blue-Chip Stocks

Shares in large, reputable companies known for their ability to operate profitably in good and bad economic times, often paying dividends.

Divisor

A number by which another number, typically the numerator of a fraction, is divided.

Bankruptcy

The legal status for individuals or entities that cannot repay debts owed to creditors, often involving asset liquidation.