Problems 50 & 51 (Ch. 22)
50. (LO3) Jack and Jill are owners of UpAHill, an S corporation. They own 25 and 75 percent, respectively. a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above?
1st Year or Year 1:
Ordinary income is 42,500.00
42,500*25% = 10,625 is allocated to Jack
42,500*75% = 31,875 is allocated to Jill
Separately Stated Items:
Interest Income 2,000.00
500.00 is allocated to Jack
1,500.00 is allocated to Jill
Dividend Income: 1,000.00
250.00 allocated to Jack
750.00 allocated to Jill
b. Complete UpAHill’s Form 1120S, Schedule K, for year 1.
c. Complete Jill’s 1120S, Schedule K-1, for year 1.
See attached Schedule
51. (LO3, LO4) Assume Jack and Jill, 25 and 75 percent shareholders in UpAHill corporation, have tax bases in their shares at the beginning of year 1 of $24,000 and $56,000, respectively. Also assume no distributions were made. Given the income statement above, what are their tax bases in their shares at the end of year 1?
Considering the 24,000 and 56,000 respectively, Jack tax basis is calculated with his original cost of 24,000 + 10,625 + 500 + 125 = 32,250.00 Jill 56,000 + 31,875 + 1,500 + 375 = 89,750.00
(LO1) Joey is a 25 percent owner of Loopy LLC. He no longer wants to be involved in the business. What options does Joey have to exit the business?
The remedy to Joeys issue should be contained within the operating agreement. In some states such as CA, this is a requirement for LLC’s. In some cases where operating agreements are not available, a buy out membership interest dissolve the LLC may be the only options.
(LO1) Compare and contrast the aggregate and entity approaches for a sale of a partnership interest.
Two approaches govern the rules governing the federal taxation of partnerships and partners– aggregate and entity. The aggregate, also known as conduit approach...
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