During 2002, Ms. Rasic, the sole shareholder of a calendar year S
corporation, received a distribution of $16,000. On December 31, 2001,
Ms Rasic's stock basis was $4,000. The corporation earned $11,000
ordinary income during the year. Calculate the amount and type of
income Ms. Rasic recognizes in 2002.

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Clarification of Question by alpa_sanjay-ga on 09 May 2003 16:19 PDT

We are talking about USA

Hi there,

I found the question and answer on the Oglethorpe University website:
http://216.239.33.104/search?q=cache:gVtAc05yF5cC:www.facstaff.oglethorpe.edu/jturner/ou/CorpTax/CTxExams/CTxX3%2520spring%252001%2520complete.doc+%22The+corporation+earned+%22+%22stock+basis+was%22&hl=en&ie=UTF-8

The answer is:

$11,000 ordinary income; $15,000 return of capital; $1,000 capital
gain. Rasic's stock basis is increased by the $11,000 ordinary income
allocable to her, giving a basis of $15,000 before the distribution.
The first $15,000 of the distribution is a return of capital, reducing
the stock basis to zero. The remaining $1,000 constitutes capital gain
(the excess over stock basis).


Best wishes,
robertskelton-ga