Question 1

At the beginning of the year, a shareholder had a stock basis of $10,000 in an S corporation. During the year, the shareholder's share of ordinary income was $5,000, and the corporation made a cash distribution of $12,000 to the shareholder. What is the shareholder's stock basis at year-end?

Accepted Answer

Ordering Rule: 1. Increase for Income. 2. Decrease for Distributions. 3. Decrease for Losses.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Subtracting distribution before adding income (though here it doesn't change the result, it matters for taxability of distribution).

At the beginning of the year, a shareholder had a stock basis of $10,000 in an S corporation. During the year, the shareholder's share of ordinary income was $5,000, and the corporation made a cash distribution of $12,000 to the shareholder. What is the shareholder's stock basis at year-end?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 5

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