Problem 22-49 (LO 22-3) [The following information applies to the questions disp

Question

Problem 22-49 (LO 22-3)

[The following information applies to the questions displayed below.]

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.

(Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

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

b. On April 13, 2017, Blinkin sells his shares to Nod.

c. On April 13, 2017, Winkin and Nod each sell their shares to Blinkin.

Period Income January 1 through April 13 (103 days) $ 217,000 April 14 through December 31 (262 days) 386,000 January 1 through December 31, 2017 (365 days) $ 603,000

Explanation / Answer

Answer a. There is no sales of stock during the year. In that case, both daily allocation method and specific identification method will give the same result. Under Daily allocation Method / Specific Identification Method Winkin - $603,000 x 1/3          201,000 Blinkin - $603,000 x 1/3          201,000 Nod - $603,000 x 1/3          201,000 Answer b. Under Daily Allocation Method Winkin - $603,000 x 1/3 X 365/365          201,000 Blinkin - $603,000 X 1/3 X 103/365            56,721 Nod - ($603,000 x 1/3 X 365/365) + ($603,000 X 1/3 X 262/365)          345,279 Under Specific Identification Method Winkin - ($217,000 X 1/3) + ($386,000 X 1/3)          201,000 Blinkin - ($217,000 X 1/3) + ($386,000 X 0/3)            72,333 Nod - ($217,000 X 1/3) + ($386,000 X 2/3)          329,667 Answer c. Under Daily Allocation Method Winkin - $603,000 x 1/3 X 103/365            56,721 Blinkin - $603,000 X 1/3 X 103/365            56,721 Nod - ($603,000 x 1/3 X 103/365) + ($603,000 X 3/3 X 262/365)          489,559 Under Specific Identification Method Winkin - ($217,000 X 1/3)            72,333 Blinkin - ($217,000 X 1/3)            72,333 Nod - ($217,000 X 1/3) + ($386,000 X 3/3)          458,333

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