Beta Corporation, an S corporation with one shareholder, incurred the following items:
Year 1
Ordinary loss …………………………… ($40,000)
Year 2
Ordinary income ……………………….. $27,000
Cash distribution ……………………….. 10,000
Year 3
Ordinary income ………………………. $22,000
Cash distribution ………………………. 17,000
At the beginning of Year 1, the shareholder’s stock basis was $20,000, and her debt basis was $16,000.
a. Assuming the corporation has no accumulated E&P, show items reported by the shareholder in each year, show all basis adjustments to stock and debt, and show the stock and debt bases at the end of each year.
b. Redo Part a for Year 2 and Year 3 assuming ordinary income in Year 2 is $8,000 instead of $27,000.
c. Go back to the original facts and again redo Part a for all years assuming that, at the beginning of Year 1, the corporation had a AAA balance of zero and accumulated E&P of $12,000.