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Tax/S Corp

Sam, Joe, and Lisa are equal shareholders in Friends, inc., and S corporation. in the conditions listed below, how much income should each report from Friends, inc. under both the daily allocation and the interim closing books allocation method. There should be 6 answers.

Period Income
Jan 1 through March 15 125,000
March 15 through Dec 31 345,500
Jan 1 through Dec 31 (365 days) total 470,500

A. There are no sales of Friends, Inc. stock during the year
B. On March 15, Joe sells his stock to Lisa
C. On March 15, Sam and Lisa each sell their shares to Joe

Solution Preview

To calculate the daily allocation: you have to take the income for the period times the number of days in the period over the number of days in the year (or months) times the percentage of ownership. To calculate the interim closing books allocation method : You take the total of income that you arrived at after figuring the daily allocation method and then total both sides of the equation sign to equal the total of the daily allocation. Note: you have to calculate the days into decimals along with the ownership in decimals.

A. Sam -Daily allocation
Pre Jan 1- $470,500 x 365/365x .3333333 = $156,833.32
Post Jan 1- 365/365 x $0 = $0
= $156,833.32
Sam?Interim Closing books allocation
Jan 1 through Dec 31 $156,833.32 = $156,833.32

Joe?daily allocation
Pre Jan 1- $470,500 x 365/365 x .3333333 = $156,833.32
Post Jan 1- 365/365 x $0 = $0
...

Solution Summary

Tax/S Corporations are examined. How much income each should report from Friends, Inc is determined. The daily allocation and interim closing books allocation methods are used.

$2.19