Question

TCO (F) Sara Inc. is a calendar-year S corporation with four shareholders who each own 25...

TCO (F) Sara Inc. is a calendar-year S corporation with four shareholders who each own 25 shares of stock. All shareholders purchased their stock for $5,000. Mr. D, one of the shareholders, made loans to the corporation of $7,000 and $6,000 on August 1, 2016, and June 15, 2017, respectively. Mr. D also guaranteed Sara’s $20,000 bank loan of $20,000. Sara Inc. had $9,000 ordinary income on December 31, 2016. Both shareholders reported their share of the corporation's income on their individual returns for 2016. For 2017, Sara Inc. reported an ordinary loss of $5,000. No distributions were made in 2016 or 2017 by the corporation. What is the adjusted basis of Mr. D's stock on December 31, 2017? If an item does not contribute to basis, please explain.​

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Answer #1

Solution:-

Particulars Amount
At beggining $5,000
Share in income of S corporation at 2016

= 9,000 / 2

= $4,500
Stock value at the end of 2016

= 5,000 + 4,500

= $9,500
Share in loss of S corporation at 2017

= 5,000 / 2

= $2,500
Mr. D's stock basis in stock at December 2017

= 9,500 - 2,500

= $7,000

Mr. D's stock basis in stock at December 2017 is $7,000 .

But from the given data the guarantee loan from the bank $20,000 of Sara .inc , We are not considering the bank $20,000 guarantee loan because contingency nature of its liabilities .

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