Question

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $50,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $45,000. For 2021, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is the total amount of income J.D. recognizes related to Clampett, Incorporated, in 2021

Answer 1

Answer:the total amount of income J.D. recognizes related to Clampett, Incorporated, in 2021 =$5,000

Explanation:

Income  of J.D related to Clampett = Ordinary income + Capital gain

Given that Basis distribution = $50,000

                   Basis stock = $45,000

                  Ordinary income = $10,000

But Capital gain  = Basis distribution -( Basis stock  + Ordinary income)

Capital gain = $50,000 - ($45,000 +$10,000)

Capital gain =  $50,000 - $55,000

Capital gain =  = - $5,000

Therefore J.D. income related to Clampett = Ordinary income + Capital gain =$10,000 +(- $5,000)

=$10,000 - $5,000

=$5,000