On January 1, 2023, Farley loans his S corporation $12,000….

On January 1, 2023, Farley loans his S corporation $12,000. By the end of 2023, Farley’s stock basis is zero and the basis in his note has been reduced to $8,000. During 2024, the company’s operating income is $11,000. The company makes 2024 distributions to Farley of $9,000. At the end of 2024, which of the following is correct: