Peter Owns 30% of Bear Company, an Electing S Corporation

question 4

Multiple Choice

Peter owns 30% of Bear Company, an electing S corporation. Peter's adjusted basis in the stock is $44,000 at the beginning of the current year. During the current year, Bear distributes a $60,000 dividend. Bear Company reports a $200,000 operating loss for the current year. If Peter is a material participant in Bear Company, how much of the loss can he deduct on his income tax return?

• A)$-0-
• B)$18,000
• C)$26,000
• D)$44,000
• E)$60,000

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Definitions:

Ordinary Annuities

Ordinary annuities are a series of equal payments made at the end of consecutive periods over a fixed length of time.

Perpetuity

A financial term referring to a security or form of investment that pays an infinite series of cash flows with no end date.

Endowment Fund

A financial asset, in the form of donations, made to non-profit organizations that uses the generated income for a specific purpose.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return, used in discounted cash flow analysis to assess the profitability of an investment.