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Topic
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Wiley Question –
Brooke, Inc., an S corporation, was organized on January 2, 2012, with two equal shareholders. Each shareholder invested $5,000 in Brooke’s capital stock, and each loaned $15,000 to the corporation. Brooke then borrowed $60,000 from a bank for working capital. Brooke sustained an operating loss of $90,000 for the year ended December 31, 2012. If each shareholder materially participates in the corporation’s business, how much loss can each shareholder claim on his 2012 income tax return
a. 5000
b.20,000
c.45,000
d,50,000the correct answer is b, why the 60,000 Brooke borrowed would not increase shareholder’s basis? is that just applicable for partnership?
Magic Corp., a regular C corporation, elected S corporation status at the beginning of the current calendar year. It had an asset with a basis of $40,000 and a fair market value (FMV) of $85,000 on January 1. The asset was sold during the year for $95,000. Magic’s corporate tax rate was 35%. What was Magic’s tax liability as a result of the sale?
a.0
b.3500
c.15750
d.19250the correct anwser is C, why is the 10,000 (95,000-85,000)none build-in gain not taxable ?
someone hlep, please
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