Question

Barbara and Kristi own equal shares in Cobalt Corporation, an S corporation. Each stockholder had a...

Barbara and Kristi own equal shares in Cobalt Corporation, an S corporation. Each stockholder had a $40,000 basis in the stock on January 1, 2019. In 2019, the corporation reported a $130,000 non-separately stated loss and no separately stated income or loss items. Cobalt Corporation’s liabilities at the end of the year included $100,000 of accounts payable, $150,000 mortgage payable, and a $20,000 loan from Barbara. Compute the 2019 loss from the S corporation reportable by Barbara.

a.

$0
b.

$40,000
c.

$60,000
d.

$65,000
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Answer #2

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For S corporation rules incomes are attributable to the stock holders in their proportion of stock holding and losses if any will not allowed to be deducted. It is the biggest limitation for S corporations because losses are not also carried forward and suspended in the period they occur. But losses upto the amount of investment is allowed to be deducted.

In such case loss to be reported by Barbara will be $40,000.

Correct answer is Option B.

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answered by: anonymous
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