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Balance Sheet for Raider Corporation

Monte and Allie each own 50% of Raider Corporation, an S corporation. Both individuals actively participate in Raider's business. On January 1, Monte and Allie have adjusted bases for their Raider stock of $80,000 and $90,000 respectively. During the current year, Raider reports the following results:
Ordinary loss $175,000
Tax-exempt interest income $20,000
Long-term capital loss $32,000

Raider's balance sheet at year-end shows the following liabilities: accounts payable, $90,000; mortgage payable, $30,000; and note payable to Allie, $10,000.
a. What income and deductions will Monte and Allie report from Raider's current year activities?
b. What is Monte's stock basis on December 31?
c. What are Allie's stock basis and debt basis on December 31?
d. What loss carryovers are available for Monte and Allie?
e. Explain how the use of the losses in Part a would change if instead Raider were a partnership and Monte and Allie were partners who shared profits, losses and liabilities equally.

Solution Preview

Dear Student, find attached the solutions to your questions. Regards.

Solutions

Question a

What income and deductions will Monte and Allie report from Raider's current year activities?

Answer

As shareholders (50% each), the income and deductions are represented in the table given below.

Monte
Allie

Allocation to shareholders
Ordinary loss ($175,000)
Tax-exempt interest income ($20,000)
Long-term capital loss ($32,000)

Loss limitation:
Stock basis
Tax-exempt interest ($20,000)
Note basis (debt basis)

Loss deduction:
Ordinary loss
Capital loss

$87,500
10,000
16,000

$80,000
10,000
-0-
$90,000

$76,087a
$13,913c

$ 87,500
10,000
16,000

$ 90,000 ...

Solution Summary

The balance sheet for Raider Corporation. The income and deductions for Monte and Allie report from Raider's current year activities.

$2.19