Use of Losses by Shareholders. Tina, a single taxpayer, owns 100% of Rocket Corporation, an S corporation. She has an $80,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Rocket reports an ordinary loss of $100,000. The corporation expects an additional $20,00O loss for December. Tina earns $325,000 of ordinary income from her other activities in Year 1. She expects her other income to decline to $125,000 in Year 2 and continue at that level in future years. The corporation expects Year 2 losses to be only $20,000. Rocket projects a $35,000 profit for Year 3 and each of the subsequent four vears

Use of Losses by Shareholders. Tina, a single taxpayer, owns 100% of Rocket Corporation, an S corporation. She has an $80,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Rocket reports an ordinary loss of $100,000. The corporation expects an additional $20,00O loss for December. Tina earns $325,000 of ordinary income from her other activities in Year 1. She expects her other income to decline to $125,000 in Year 2 and continue at that level in future years. The corporation expects Year 2 losses to be only $20,000. Rocket projects a $35,000 profit for Year 3 and each of the subsequent four vears

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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Julio and Milania are owners of Falcons Corporation, an S corporation. They each own 50 percent of Falcons Corporation. In year 2, Julio and Milania each received distributions of $25,000 from Falcons Corporation. Sales revenue Cost of goods sold Falcons Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2 Salary to owners Julio and Milania Employee wages Depreciation expense Section 179 expense Interest income. Municipal bond income Government fines Overall net income Distributions Ordinary Income Year 1 Year 2 $300,000 $430,000 (40,000) (60,000) (40,000) (80,000) (50,000) (25,000) (20,000) (40,000) (30,000) (50,000) 12,000 22,500 1,500 0 Amount a. What amount of ordinary income and separately stated items are allocated to them for year 2 based on the information above? 4,000 (2,000) $158,500 $174,500 $ 30,000 $ 50,000 Julio Milania
Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray Kinsella, on December 31 of this year. Ray's tax basis in his Hawkeye stock before the distribution is $75,000. b. What is Ray's tax basis in his Hawkeye stock after the distribution? Tax basis
Sonny and Cher equally own Song Corporation, an 5 corporation. Each has a $50,000 stock basis at the beginning of the year. Song Corporation has a $100,000 mortgage on its balance sheet, as well as a note payable to Cher for $25,000. During the current year, Song Corporation reports an ordinary loss of $105,000. 1. What is Sonny's stock basis at the end of the year? 2. What is Sonny's debt basis at the end of the year? 3. What loss will Sonny report on his tax return for the year? 4. What is Cher's stock basis at the end of the year? 5. What is Cher's debt basis at the end of the year? 6. What loss will Cher report on her tax return for the year?
Peggy owns 100% of Delta Corporation's stock. She purchased her stock ten years ago, and her current basis for the stock is $215,000. On June 10, Peggy decided to liquidate Delta. Delta's balance sheet prior to the sale of the assets, payment of the liquidation expenses, and payment of federal income taxes, as well as some additional information is as follows: View the balance sheet. View the additional information. Read the requirements. Requirement a. What are the tax consequences of the liquidation to Peggy and Delta Corporation? Assume a 21% corporate tax rate. Let's begin by determining the tax consequences for Delta. Start by computing Delta's recognized gain or loss on each of the assets distributed to Peggy (and in total) as a result of the liquidation. (Complete all input fields. Enter a 0 in the "Recognized gain (loss)" column, and enter "N/A" in the "Character of gain or loss" column if no gain or loss is recognized by Delta.) Cash Assets Marketable securities Equipment Land…
Facts: Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. Ellie has a basis in Otter Enterprises of $80,000 at the beginning of the year. Linda has a basis in Otter Enterprises of $60,000 at the beginning of the year. Assume that Otter Enterprises has no debt. Otter Enterprises has $320.000 of gross income and $210.000 of operating expenses. In addition. Otter has a long-term capital gain of $15.000 and makes distributions to Ellie and Linda of $25,000 each. Required: Discuss the impact of this information on the taxable income of Otter. Ellie, and Linda if Otter is: A. A partnership. B. An S corporation. C. AC corporation. Include in your discussion (1) the amount and character of any income recognized by Ellie, Linda, and Otter (including Otter's taxable income and the amount of any tax paid by Otter) in each business entity form; and (2) Ellie and Linda's basis in Otter Enterprises at the end of the year in each business entity form. Show your work and…
Larry, the sole shareholder of Brown Corporation, sold his Brown stock to Ed on July 30 for $270,000. Larry’s basis in the stock was $200,000 at the beginning of the year. Brown had accumulated E & P of $120,000 on January 1 and has current E & P of $240,000. During the year, Brown made the following distributions: $450,000 of cash to Larry on July 1 and $150,000 of cash to Ed on December 30. How will Larry and Ed be taxed.
22. At the beginning of the tax year, Tim had a $2,000 stock basis in the S corporation, World, Inc. Tim owns 25% of the outstanding World, Inc. stock. At the end of the tax year, World, Inc. reported on its Schedule K, a $16,000 ordinary loss, $4,000 of interest income, and $2,000 in nondeductible expense. Tim also has $10,000 in flow-through reportable income from other S corporations. How much of the World, Inc. ordinary loss can Tim deduct on his personal return? . $0 • $2,500 . $3,000 $4,000
Gene Grams is a 40% owner of a calendar year S corporation during the tax year. His beginning stock basis is $150,000, and the S corporation reports the following items. Ordinary income $72,000 Short-term capital gain 16,000 § 1231 loss 6,000 Tax-exempt interest income 5,000 Distributions 40,000 Gene sells all of his stock in the S corporation for $310,000. What is the amount and character of the gain or loss to Gene?
At the beginning of the current year, Tymoe, an S corporation, was owned by two individual shareholders, Tyler and Moe. Tyler owns 52% and Moe owns 48%. During the year, Tymoe had ordinary income of $480,000, a net long-term capital gain of $45,000, and charitable contributions of $12,000. What is the amount of ordinary income, capital gain, and charitable contribution from Tymoe's activities that Tyler and Moe must each report in the current year?
WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT’s ordinary income for the year was $232,000. Required:What portion of this income must each shareholder include in income? (Assume 365 days in a year. Round income per day of ownership to 4 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amount.)
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