On January 1, Year 1, Ginger, an individual, paid $24,000 for 6 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $12,000 to Root Corp. in return for a promissory note. Root Corp. generated a $790,000 operating loss in Year 1. Root Corp. generated $427,000 ordinary business income in Year 2. Required: a. How much of Ginger's share of this income is included in his Year 2 taxable income? b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2. c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $239,000?

On January 1, Year 1, Ginger, an individual, paid $24,000 for 6 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $12,000 to Root Corp. in return for a promissory note. Root Corp. generated a $790,000 operating loss in Year 1. Root Corp. generated $427,000 ordinary business income in Year 2. Required: a. How much of Ginger's share of this income is included in his Year 2 taxable income? b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2. c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $239,000?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter14: Choice Of Business Entity—operations And Distributions

Section: Chapter Questions

Problem 28P

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