Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In

Question

Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed below, how much income should each report from SleepEZ for 2016 under both the daily allocation and the specific identification allocation method? Refer to the following table for the timing of SleepEZ’s income.

a. There are no sales of SleepEZ stock during the year.

b. On February 18, 2016, Blinkin sells his shares to Nod.

c. On February 18, 2016, Winkin and Nod each sell their shares to Blinkin.

Period Income January 1 through February 18 (49 days) $ 209,000 February 19 through December 31 (317 days) 424,000 January 1 through December 31, 2016 (366 days) $ 633,000

a. There are no sales of SleepEZ stock during the year.

b. On February 18, 2016, Blinkin sells his shares to Nod.

c. On February 18, 2016, Winkin and Nod each sell their shares to Blinkin.

Explanation / Answer

Ans a In this case there is no need to apply allocation method as there was no ownership change.Each shareholder report Income of (633000/3)= $211000 ans b in $ Daily allocation method Winkin (633000*1/3) 211000 Blinkin (633000*1/3*49/366) 28249 Nod 393751 (211000+(1/3*633000*317/366) Specific Identification method Winkin (209000*1/3)+(424000*1/3) 211000 Blinkin 69667 (209000*1/3) Nod 352333 (209000*1/3)+(424000*2/3) ans c Daily allocation method Winkin (633000*1/3*49/366) 28249 Blinkin (633000*1/3*49/366) 28249 Nod 576503 (1/3*633000*49/366)+(3/3*633000*317/366) Specific Identification method Winkin (209000*1/3) 69667 Blinkin 69667 (209000*1/3) Nod 493667 (209000*1/3)+(424000*3/3) If any doubt please comment. If satisfied you can rate

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