Exercise 22-21 (Algorithmic) (LO. 7) Vogel, Inc., an S corporation for five year
ID: 2404701 • Letter: E
Question
Exercise 22-21 (Algorithmic) (LO. 7)
Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $224,800 ten years ago and is currently worth $562,000.
If an amount is zero, enter, "0".
a. As a result of the distribution, Vogel recognizes _____________(A CAPITAL GAIN/ORDINARY INCOME) of $____________ which is reported on Schedule K, and ________________________(ALL OF IT PASSES THROUGH TO JARMARI / A PROPORTIONATE SHARE OF IT PASSES THROUGH THE SHAREHOLDERS)
b. The net effect of the distribution on Vogel's AAA is ____________(A DECREASE/AN INCREASE) of $___________________.
c. If the land had been purchased for $562,000 and was currently worth $224,800, Vogel recognizes a loss $___________ and the net effect on Vogel's AAA is $_______________. Jamari would take a $_____________ basis in the land.
Explanation / Answer
a. As a result of the distribution, Vogel recognizes Capital Gain of $337200 which is reported on Schedule K, and ALL OF IT PASSES THROUGH TO JARMARI.
b. The net effect of the distribution on Vogel's AAA is A DECREASE of $ 224,800
c. If the land had been purchased for $562,000 and was currently worth $224,800, Vogel recognizes a loss $ 337200 if sold and $ 0 if not sold and the net effect on Vogel's AAA is $ decrease of $ 224800 Jamari would take a $ 224800 basis in the land.
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