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 2017 under both the daily allocation and the specific identification allocation method? Refer to the following table for the timing of SleepEZ’s income.

c. On February 28, 2017, Winkin and Nod each sell their shares to Blinkin.

Period Income January 1 through February 28 (58 days) $ 152,000 February 29 through December 31 (307 days) 418,000 January 1 through December 31, 2017 (365 days) $ 570,000

c. On February 28, 2017, Winkin and Nod each sell their shares to Blinkin.

Explanation / Answer

answer c) Daily allocation method

Winkin =30192 ( 1/3 ownership × 58/365 days × 570000)

Nod =30192 ( 1/3 ownership × 58/365 days × 570000)

Blinkin= 509617 {( 1/3 ownership × 58/365days × 570000) + (3/3 ownership ×307/365 ×570000)}

Actual Allocation Method

Winkin = 50667 (1/3 ownership × 152000)

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