On January 1, Year 1, Radish, an individual, paid $15,000 for 5 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $8,000 to Root Corp. in return for a promissory note. Root Corp. generated a $600,000 operating loss in Year 1. Root Corp. generated $220,000 ordinary business income in Year 2. In Year 3, Root Corp. repaid its $8,000 debt to Radish before he restored any basis in the debt. Required: How much gain or loss, if any, will Radish recognize as a result of the debt repayment in Year 3?
On January 1, Year 1, Radish, an individual, paid $15,000 for 5 percent of the stock in Root Corp., an S corporation. In November Year 1, he loaned $8,000 to Root Corp. in return for a promissory note. Root Corp. generated a $600,000 operating loss in Year 1. Root Corp. generated $220,000 ordinary business income in Year 2. In Year 3, Root Corp. repaid its $8,000 debt to Radish before he restored any basis in the debt. Required: How much gain or loss, if any, will Radish recognize as a result of the debt repayment in Year 3?
Chapter22: S Corporations
Section: Chapter Questions
Problem 22CE
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![On January 1, Year 1, Radish, an individual, paid $15,000 for 5 percent of the stock in Root Corp., an S corporation. In November Year 1,
he loaned $8,000 to Root Corp. in return for a promissory note. Root Corp. generated a $600,000 operating loss in Year 1. Root
Corp. generated $220,000 ordinary business income in Year 2. In Year 3, Root Corp. repaid its $8,000 debt to Radish before he
restored any basis in the debt.
Required:
How much gain or loss, if any, will Radish recognize as a result of the debt repayment in Year 3?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc5966507-0fa2-49d7-8229-2cbf653ffce4%2F09733c36-4ca9-4ccd-a537-f20fdfd9cb18%2Fp844bt9_processed.png&w=3840&q=75)
Transcribed Image Text:On January 1, Year 1, Radish, an individual, paid $15,000 for 5 percent of the stock in Root Corp., an S corporation. In November Year 1,
he loaned $8,000 to Root Corp. in return for a promissory note. Root Corp. generated a $600,000 operating loss in Year 1. Root
Corp. generated $220,000 ordinary business income in Year 2. In Year 3, Root Corp. repaid its $8,000 debt to Radish before he
restored any basis in the debt.
Required:
How much gain or loss, if any, will Radish recognize as a result of the debt repayment in Year 3?
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