On January 1, Year 1, Ginger, an individual, paid $25,000 for 6 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $9,000 to Root Corp. in return for a promissory note. Root Corp. generated a $700,000 operating loss in Year 1. Root Corp. generated $418,000 ordinary business income in Year 2. Required: a. How much of Ginger's share of this income is included in his Year 2 taxable income? b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2. c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $230,000? Complete this question by entering your answers in the tabs below. Dea C
On January 1, Year 1, Ginger, an individual, paid $25,000 for 6 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $9,000 to Root Corp. in return for a promissory note. Root Corp. generated a $700,000 operating loss in Year 1. Root Corp. generated $418,000 ordinary business income in Year 2. Required: a. How much of Ginger's share of this income is included in his Year 2 taxable income? b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2. c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $230,000? Complete this question by entering your answers in the tabs below. Dea C
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem: Module 7 Textbook Problem 7
Learning Objectives:
⚫ 7-6 Adjust the tax basis in a partnership interest
• 7-7 Apply the basis limitation on the deduction of partnership losses
On January 1, Year 1, Ginger, an individual, paid $25,000 for 6 percent of the stock in Root Corp., an S corporation. In November Year 1,
he loaned $9,000 to Root Corp. in return for a promissory note. Root Corp. generated a $700,000 operating loss in Year 1. Root
Corp. generated $418,000 ordinary business income in Year 2.
Required:
a. How much of Ginger's share of this income is included in his Year 2 taxable income?
b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2.
c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $230,000?
Complete this question by entering your answers in the tabs below.
Req A and B
Req C
a. How much of Ginger's share of this income is included in his Year 2 taxable income?
b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2.
Taxable income
Adjusted basis
Root Stock
Root Note
Amount
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