Peter is the sole shareholder in a calendar year S corporation. In 2021, his stock basis is $50,000, his share of the AAA is $ 11,000, and his share of corporate AEP is $ 16,000. He receives a $29,000 distribution, and his share of S corporation items includes a $ 12,000 long- term capital loss and a $ 18,000 ordinary income. Determine Peter’s ending balance in AAA, AEP, and stock basis.How much income, gain, or loss will Peter have from the above transactions in the S corporation? Be specific in terms of the amount of income (or loss) and the character of the income or loss.Peter notes, “It sure is great this is an S corporation because I know that I won’t get taxed on the $29,000 distribution. What will you tell Peter? Write one or two paragraph explaining the tax implications of the S corporation transactions.

S-Corporation: S corporation is a a type of legal business entity and have specific Internal Revenue Code requirements Question III) S corporation(also called S subchapter) is a a type of legal business entity. Business income, losses, deductions, and credits to shareholders is passed in Corporate taxes filed under Subchapter S . Advantages for S corporation is tax benefit, they should not pay federal taxes at the entity level. There are largely exempt from corporate taxes. It is possible in S corporation to transfer interests or adjust property basis, without facing adverse tax consequences or having to comply with complex accounting rules. There is no double taxation for shareholders in S Corporation. if the distribution is not exceeding their stock basis, employees who is shareholders in S corporation, that receive corporate dividends that are tax-free .If a shareholder's stock basis is less than dividends, excess is taxed as capital gains but at a lower rate than ordinary income. Because of owner’s formal commitment to the company, S corporation can earn credibility with potential customers, employees, suppliers, and investors

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Peter is the sole shareholder in a calendar year S corporation. In 2021, his stock basis is $50,000, his share of the AAA is $ 11,000, and his share of corporate AEP is $ 16,000. He receives a $29,000 distribution, and his share of S corporation items includes a $ 12,000 long- term capital loss and a $ 18,000 ordinary income.

Determine Peter’s ending balance in AAA, AEP, and stock basis.
How much income, gain, or loss will Peter have from the above transactions in the S corporation? Be specific in terms of the amount of income (or loss) and the character of the income or loss.
Peter notes, “It sure is great this is an S corporation because I know that I won’t get taxed on the $29,000 distribution. What will you tell Peter? Write one or two paragraph explaining the tax implications of the S corporation transactions.

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