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.

(Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. There are no sales of SleepEZ stock during the year.

What is the daily allocation method and specific Identification method for Winkin, Blinkin, and Nod?

b. On March 23, 2017, Blinkin sells his shares to Nod.

What is the daily allocation method and specific Identification method for Winkin, Blinkin, and Nod?

c. On March 23, 2017, Winkin and Nod each sell their shares to Blinkin.

What is the daily allocation method and specific Identification method for Winkin, Blinkin, and Nod?

Period Income January 1 through March 23 (82 days) $ 160,000 March 24 through December 31 (283 days) 408,000 January 1 through December 31, 2017 (365 days) $ 568,000

Explanation / Answer

a. Since there was no change in ownership, both the allocation method and specific identification method would give the same results. Hence no need to apply these methods. Each shareholder will report $189333 of income ($568000 x 1/3 ownership).

b. Daily allocation method

Specific Identification Method

c.

Daily allocation method

Specific Identification Method

Winkin 1/3 ownership x $568000 x 365/365 days $189333 Blinkin 1/3 ownership x $568000 x 81/365 days $42016 Nod (1/3 ownership x $568000 x 365/365 days)
+ (1/3 ownership x $568000 x 284/365 days) $336650

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