For each of the following situations, determine the amount of income (loss) that

Question

For each of the following situations, determine the amount of income (loss) that should be allocated to the S corporation shareholder. Enter the appropriate amounts as positive numbers in the shaded cells below. Round answers to the nearest dollar. If no entry is necessary or the answer is zero, enter a (0).

Situation Amount 1. Red and Blue were the only shareholders of Purple, Inc., an S corporation. On January 1, Year 1, Red owned 45 shares and Blue owned 55. On November 30, Year 1, Blue sold all of his shares to Yellow for $15,000. The corporation reported a $60,000 gain at the end of Year 1. How much of the gain is allocated to Yellow? 2. Steve and Jim are the only partners in Slim, Inc. (an S corporation). Steve owns 30 shares and Jim owns 70 and on January 31, Steve sold half of his shares to Rachel. Slim reported a $100,000 ordinary gain for the year, how much of the gain is allocated to Steve? 3. Fruit Corp., an S corporation, had an ordinary loss of $38,500 for the year ended December 31, Year 4. On October 31, Year 4, Banana purchased 50% of Fruit's stock from Apple for $13,000. How much of the loss is allocated to Banana? 4. Purple and Gold are the only shareholders of Lammie, Inc. (an S corporation). Throughout the entire year, Purple owned 80% of the shares and Gold owned 20%. At the end of the year, the S corporation reported a loss of $70,000. How much of the loss is allocated to Purple?

Explanation / Answer

1. For the Situation One.

Yellow has purchased 55% shares of the Purple Inc on November 30 so yellow is shareholder for only one month actually but he will get $ 33,000 ($ 60,000*55/100) as share of gain because its company shareholder and its assume that the Yellow has purchased Above Share inclusive of all rights.

2. For the Situation Two.

Steve is 30% Partner as on 31 january after that he sold his half share to Rachel who now become 15% Partner of Slim inc but he get only 11 month Profit share.

So, Steve Gain from Firm = ($ 100000*15/100) + ($ 100000*15/100)*1/12

= $ 15,000 + $ 1,250

= $ 16,250

3. For the Situation Three.

Banan Hold Share of Fruit Company form october 31 of year 4 that is only for 2 Month so the loss is allocated to banana also for 2 months of its 50% shares only.

Allocation of Loss to Banana = ($ 38,500 * 50/100) * 2/12

= $ 3208.33

= $ 3,208 (Answer near to Dollar)

4. For the Situation Four.

Purple Hold 80% of share of Lammie Inc through out the Year so loss of the year will allocated fully to purple to the extend of 80% only

Allocation to Purple= 80% of $ 70,000

= $ 56,000

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