Final answer:
Ginger's payment for 5 percent of Root Corp's stock signifies an increase in his ownership stake. This does not affect the corporation's operating loss or financial position, nor does it necessarily change the stock's market value. Returns on investment may come via dividends or potential capital gains on resale.
Step-by-step explanation:
The significance of Ginger's action on January 1, year 1, when he paid $17,000 for 5 percent of the stock in Root Corp., an S corporation, is that Ginger increased his ownership stake in Root Corp. This purchase represents an investment into the company and does not directly affect Root Corp.'s operating loss, neither does it guarantee any change in the market value of the company's stock. The action does not impact the financial position of Root Corp., as the transaction would merely transfer funds from Ginger to the corporation or its shareholders, depending on whether the stock was newly issued or purchased from an existing shareholder.
An investor like Ginger might expect a rate of return on this investment either through dividends or through capital gains should the value of the stock increase from the purchase price and he decides to sell it at a higher price in the future.