Question

Jonathan owns 20 percent of Moment Corporation, a partnership, for $200,000 cash on January 1, 2018. During the year, Moment Corporation reports a loss of $120,000 and pays cash dividends to shareholders of $10,000. During 2019, Moment Corporation has income of $400,000 and pays cash dividends of $80,000. Jonathan's basis in the Moment Corporation stock at the end of 2019 is:

Answer 1

$238,000

Step-by-step explanation:

Using an equity approach where the worth of one's investment is computed by taking initial amount invested,then add the share of profit from the business(deduct share of losses) as well as deducting the amount received in cash dividends,Jonathan's basis in the Moment Corporation stock can be computed thus:

Jonathan's Basis in 2018:

Opening basis $200,000

share of reported losses($120,000*20%) ($24,000)

Share of dividends($10,000*20%) ( $2,000)

ending basis $174,000

Jonathan's basis in 2019

Opening basis $174,000

share of net income($400,000*20%) $80,000

share of dividends($80,000*20%) ($16,000)

ending basis $238,000