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Birch Corporation, a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corporation in the amount of $5,000. Birch Corporation has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $25,000 business loss. What amount of the loss clears the tax-basis limitation, and what is James's basis in his Birch Corporation stock and Birch Corporation debt in each of the following alternative scenarios? Note: Leave no answer blank. Enter zero if applicable. Problem 11-57 Part b (Static)

Birch Corporation, a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corporation in the amount of $5,000. Birch Corporation has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $25,000 business loss. What amount of the loss clears the tax-basis limitation, and what is James's basis in his Birch Corporation stock and Birch Corporation debt in each of the following alternative scenarios? Note: Leave no answer blank. Enter zero if applicable. Problem 11-57 Part b (Static)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please its two parts of one question only, if can't help with both parts please skip , like is guaranteed 

Birch Corporation, a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corporation in the amount of $5,000. Birch Corporation has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $25,000 business loss. What amount of the loss clears the tax-basis limitation, and what is James's basis in his Birch Corporation stock and Birch Corporation debt in each of the following alternative scenarios? Note: Leave no answer blank. Enter zero if applicable. Problem 11-57 Part b (Static) b. At the beginning of the year, James's basis in his Birch Corporation stock was $8,000 and his basis in his Birch Corporation debt was $5,000. Amount of loss clearing tax basis limitation Basis in stock Basis in debt $ 0
Transcribed Image Text:Birch Corporation, a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corporation in the amount of $5,000. Birch Corporation has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $25,000 business loss. What amount of the loss clears the tax-basis limitation, and what is James's basis in his Birch Corporation stock and Birch Corporation debt in each of the following alternative scenarios? Note: Leave no answer blank. Enter zero if applicable. Problem 11-57 Part b (Static) b. At the beginning of the year, James's basis in his Birch Corporation stock was $8,000 and his basis in his Birch Corporation debt was $5,000. Amount of loss clearing tax basis limitation Basis in stock Basis in debt $ 0
c. At the beginning of the year, James's basis in his Birch Corporation stock was $0 and his basis in his Birch Corporation debt was $5,000. Amount of loss clearing tax basis limitation Basis in stock Basis in debt
Transcribed Image Text:c. At the beginning of the year, James's basis in his Birch Corporation stock was $0 and his basis in his Birch Corporation debt was $5,000. Amount of loss clearing tax basis limitation Basis in stock Basis in debt
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