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 April 19, 2016, Blinkin sells his shares to Nod.

c. On April 19, 2016, Winkin and Nod each sell their shares to Blinkin.

Period Income January 1 through April 19 (110 days) $ 209,000 April 20 through December 31 (256 days) 359,000 January 1 through December 31, 2016 (366 days) $ 568,000

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

b. On April 19, 2016, Blinkin sells his shares to Nod.

c. On April 19, 2016, Winkin and Nod each sell their shares to Blinkin.

Explanation / Answer

a. Since there is no change in ownership,no need to apply allocation method. Income to Winkin 568000*1/3=189333 Binkin 568000*1/3=189333 Nod 568000*1/3=189333 b. Daily allocation method: Winkin (568000*1/3*366/366)=189333 Binkin (568000*1/3*110/366)=56903 Nod (568000*1/3*366/366)+(568000*1/3*256/366)=189333+132430=321763 Specific identification method: Winkin (209000*1/3)+(359000*1/3)=189333 Binkin (209000*1/3)=69667 Nod (209000*1/3)+(359000*2/3)=309000 c. Daily allocation method: Winkin (568000*1/3*110/366)=56903 Binkin (568000*1/3*110/366)+(568000*3/3*256/366)=454193 Nod (568000*1/3*110/366)=56903 Specific identification method: Winkin (209000*1/3)=69667 Binkin (209000*1/3)+(359000*3/3)=428667 Nod (209000*1/3)=69667

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