At the end of the current year, Ray has a $10,000 stock basis in his wholly-owned S corporation and a $5,000 basis in a loan that he made to the corporation. At this point, Ray receives a $12,000 cash distribution from the corporation. How much gain, if any, does Ray recognize from this distribution?

a. $0

b. $2,000

c. $5,000

d. $7,000

e. $12,000

A short explanation is appreciated!