Accounting

Topics: Income, Taxation in the United States, Tax Pages: 10 (2910 words) Published: June 24, 2013
5 PROBLEM
28.Y, an S corporation formed at the beginning of the year, has the following information in its first year: Gross Income from services$100,000
Net short-term capital loss(2,200)
Salary paid to F(10,000)
Medical insurance premium for F(300)
Other operating expenses(54,000)
Cash distributions to F5,000
F, a 50 percent owner of Y, is single and has no other tax information. F's A.G.I. is a.$21,900
b.$26,750
c.$26,900
d.$35,700
e.Some other amount, which is $_________
b. ($100,000 – $10,000 – $54,000 = $36,000 – 300) × 50% = $17,850 + $10,300 salary – $1,100 STCL – $300 Medical Insurance allowable = $26,750). The salary is deductible by the S corporation and includible by F. Half the capital loss flows through to F and reduces her A.G.I. The medical insurance premium is deductible by the corporation and is treated as salary to the shareholder. (See Example 16 and pp. 23-12 and 23-13.)

29.An S corporation has the following information for its taxable year: Net ordinary income before the
items below are considered$65,000
Salary to Z(18,000)
Rental income22,000
Rental expenses(29,000)
Net income$40,000
Z, a 50 percent owner, performs services for the business. Z's self-employment income from the corporation, which is subject to self-employment tax, is a.$0
b.$18,000
c.$41,500
d.$23,500
e.$38,000

29.a. Shareholders do not have self-employment income from profits or employment by S (or C) corporation. Their salaries are subject to FICA. (See p. 23-13.)

31.Z owns five of an S corporation's 100 shares of common stock outstanding. After holding the stock 73 days during the taxable year, Z sells all five shares. S corporate records for the year show taxable income to be $200,000. If no special election is made, Z's includible share of taxable income from the S corporation is a.$2,000

b.$10,000
c.Not able to be determined from the information provided in the problem because the interim closing of books method must be used d.Not able to be determined from the information provided in the problem because the per-day allocation method must be used

b. An S corporation shareholder's basis does not include a proportionate share of corporate debt nor does it include any personal guarantees of corporate debt. Instead the basis includes all corporate debt directly owed to this particular shareholder (i.e., the shareholder's receivables from the S corporation) but only for purposes of allocating losses. (See Example 22 and p. 23-30.)

35.An S corporation incurs a net operating loss of $25,000 in the current year and makes no distributions. Its sole shareholder, K, has a basis in the stock of $30,000 and in a note receivable from the corporation of $20,000. The $25,000 has the following impact: a.None, since no distributions were made

b.Reduces the stock basis by $25,000
c.Reduces the note basis by $20,000 and the stock basis by $5,000 d.Reduces the note basis by $10,000 and the stock basis by $15,000 b. Losses and other deductions flow through to an S shareholder first to the extent of the shareholder's basis in the stock. After the stock basis is reduced to zero, additional losses and deductions may flow through to the extent of debt owed to the shareholder. (See Example 22 and pp. 23-28 through 23-30.)

36. H Company, a calendar year S corporation incorporated in 2007, showed the following taxable income and distributions: Taxable Income from EarningsDistributions
2007$ 50,000$ 35,000
200855,00035,000
200960,00025,000
201060,00035,000
201140,00050,000
Total$265,000$180,000
The company has had a single shareholder since January 1, 2007, and his basis in the stock on that date was $0. The shareholder has no receivables from the corporation. Based on the figures above, how has the shareholder's basis changed? a.Decreased $180,000

b.Increased $265,000
c.Increased $75,000
d.Increased $85,000
d. The difference between the...
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