2) XYZ Corporation (an S corporation) is owned by Jane and Rebecca who are each
ID: 2590022 • Letter: 2
Question
2) XYZ Corporation (an S corporation) is owned by Jane and Rebecca who are each 50% shareholders. At the beginning of the year, Jane's basis in her XYZ stock was $40,000. XYZ reported the following tax information for 2016. Description Sales revenue Cost of goods sold Long-term capital gain Dividend income Tax exempt interest Salary to owners Employee wages Description expenses Miscellaneous expenses Overall net income Amount $730,000 (200,000) 8,000 5,000 3,000 (120,000) (50,000) (12,000) (10,000) $354,000 Required a. What amount of ordinary business income is allocated to Jane? b. What is the amount and character of separately stated items allocated to Jane? c. What is Jane's basis in her XYZ corp. stock at the end of the year?Explanation / Answer
a) ordinary business income allocated to Jane
Particulars
Amount
Jane allocation 50%
Overall net income for 2016
$354,000
Less:
Long term capital gains
$8,000
Dividends
$5,000
Tax exempt interest
$3,000
Ordinary business income
$338,000
$169,000
ordinary business income allocated to Jane = $169,000
b)the amount and character of separately stated items allocated to Jane
Particulars
Amount
Jane allocation 50%
Separately stated items :
Long term capital gains
$8,000
$4,000
Dividends
$5,000
$2,500
Tax exempt interest
$3,000
$1,500
c) Jane’s stock basis at the end of the year is $217,000
=(stock + allocation(50%) +long term capital gains(50%)+dividends(50%)+tax exempt interest (50%))
= ($40,000+$169,000+$4,000+$2,500+$1,500)
= $217,000
Jane’s stock basis at the end of the year is $217,000
Particulars
Amount
Jane allocation 50%
Overall net income for 2016
$354,000
Less:
Long term capital gains
$8,000
Dividends
$5,000
Tax exempt interest
$3,000
Ordinary business income
$338,000
$169,000
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