Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In

Question

Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed below, how much income should each report from SleepEZ for 2017 under both the daily allocation and the specific identification allocation method? Refer to the following table for the timing of SleepEZ’s income. Period Income January 1 through April 18 (108 days) $ 142,000 April 19 through December 31 (257 days) 423,000 January 1 through December 31, 2017 (365 days) $ 565,000 (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) b. On April 18, 2017, Blinkin sells his shares to Nod. Income Reported daily allocation method Winkin Blinkin Nod Income Reported Specific Identification Method Winkin Blinkin Nod

Explanation / Answer

Solution:(b):

DAILY ALLOCATION METHOD:

Winkin = 1/3 (ownership) * 365/365 (days) * 565000 (income) = $188,333

Blinkin = 1/3*(108/365)*565000 = $55,726

Nod = {(1/3*365/365*565000}+(1/3*257/365*565000)} = $320,941

SPECIFIC IDENTIFICATION METHOD:

Winkin = (1/3*142000)+(1/3*423000) = $188,333

Blinkin = (1/3*142000)+(0/3*423000) = $47,333

Nod = (1/3*142000)+(2/3*423000) = $329,334

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