Question 1:
Brenda formed a public relations firm in 2011, Brenda PR, by contributing $10,000 for 100% of its common stock. Brenda PR also secured a $100,000 credit line from Chase Bank in the year of 2012. Brenda has no profit or loss for 201. During 2012, Brenda PR earned $50,000 and $5,000 during 2013. On December 31, 2013, Brenda took distribution of $80,000.
a. What is Brenda's basis(stock and/or debt) at the end of 2013?
b. How will Brenda's basis be taxed, if at all, for 2013 as a result of the 2013 transactions?
Question 2:
Arlington Company is constructing a building. Construction started on January 1, 2014 and was completed on December 31, 2014. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable.