Identify Which of the Following Statements Is False

question 31

Multiple Choice

Identify which of the following statements is false.

• A)Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the at-risk and passive activity limitations, Randy can deduct the loss in full.
• B)A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.
• C)A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.
• D)Debt basis is restored before stock basis.

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Definitions:

Bank Loan

A sum of money lent by a bank to a borrower for a set period at an agreed interest rate.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.

Interest Payable

A liability account representing the amount of interest expense that has been incurred but not yet paid.

Accrued Expense

Expenses that have been incurred but not yet paid or recorded in the financial statements, reflecting obligations that a business has taken on.