Reference no: EM132814657

Question - Ace Corporation (an S corporation) Income Statement December 31, Year 1

Fred is the sole shareholder of Ace Corp. At the beginning of the year, Fred's basis in his Ace stock was $80,000. Ace reported the following tax information for 2020.

Sales revenue $430,000

Cost of goods sold (60,000)

Salary to owner (40,000)

Employee wages (50,000)

Depreciation expense (40,000)

Section 179 expense (10,000)

Interest income (related to

investment income) 12,500

Municipal bond income 1,500

Government fines (2,000)

Investment interest expense (3,000)

Rent expense (12,000)

Overall Net Income $227,000

1. What amount of ordinary business income is allocated to Fred?

2. What is the amount and character of the separately stated items allocated to Fred?

3. What is Fred's basis in his XYZ Corporation stock at the end of the year?