Question

Jamya and Manu are the shareholders of Buffalo Corporation an S Corporation. They each own 50% of Buffalo Corporation. In Year 1, Jamya and Manu each received distributions of $30,000 from Buffalo Corporation. In Year 2, they received distributions each of $50,000.

Buffalo Corporation (an S Corporation) Income Statement, Dec. 31, 20x8 and 20X9	20X8(Year 1)	20X9(Year 2)
Sales revenue	$600,000	$860,000
Cost of goods sold	(80,000)	(120,000)
Salary to shareholders Manu and Jamya	(80,000)	(160,000)
Employee wages	(50,000)	(100,000)
Depreciation expense	(40,000)	(80,000)
Section 179 expense	(60,000)	(100,000)
Interest income (related to business)	24,000	45,000
Municipal bond income	3,000	8,000
Government fines	0	(4000)
Overall net income	317,000	349,000
Distributions	$60,000	$100,000

Requirements:

1. Determine and explain the amount of ordinary income and separately stated items allocated to them for Year 1 based on the information given in the table above. Assume that Buffalo Corporation has qualified property with an unadjusted basis of $400,000.
2. Using ProConnect and/or fill in forms, complete the S Corporation Form 1120S, Schedule K for Year 1 and Schedule K-1 for Jamya.
3. Determine and explain the amount of ordinary income and separately stated items are allocated to them for Year 2 based on the information given in the table above, assuming Buffalo Corp has qualified property with an unadjusted basis of $400,000.
4. Using ProConnect and/or fill in forms, complete the S Corporation Form 1120S, Schedule K for Year 2 and Schedule K-1 for Manu.

Submit a Schedule K, and one Schedule K-1 for Jamya and one for Manu and a Word document for questions a), and b), or one Word document with embedded Schedule K, and Schedule K-1 in the document.

Answer 1

Solution -

Statement of Ordinary Income
Particulars	Year 1		Year 2
Sales Revenue		$      600,000		$      860,000
Cost of Goods Sold	$        80,000		$      120,000
Employee Wages	$        50,000		$      100,000
Depreciation	$        40,000		$        80,000
Section 179 Expenses	$        60,000		$      100,000
Interest Income	$      (24,000)	$      206,000	$      (45,000)	$      355,000
Ordinary Income		$      394,000		$      505,000

List of Seperatly Stated Items
Particulars	Year 1	Year 2
Salary to shareholders Manu and Jamya	$        80,000	$      160,000
Government Fines		$          4,000
Municipal Bond Income	$        (3,000)	$        (8,000)