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 2018 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 4 (94 days)	$	139,000
April 5 through December 31 (271 days)		405,000
January 1 through December 31, 2018 (365 days)	$	544,000

(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.

b. On April 4, 2018, Blinkin sells his shares to Nod.

c. On April 4, 2018, Winkin and Nod each sell their shares to Blinkin.

	Income Reported Daily Allocation Method Specific Identification Method Winkin Blinkin Nod

Answer 1

Answer  

Income Reported
	Daily Allocation Method	Specific Identification Method
Winkin	$     46,700	$          46,333
Nod	$     46,700	$          46,333
Blinkin	$   450,600	$        451,333	or 451334

Workings

Daily Allocation method
Winkin Profit = 544000*94*1/365*3 = 46700	$          46,700
Nod Profit = 544000*94*1/365*3 = 46700	$          46,700
Binkin Profit = 544000*94*1/365*3 + 544000*271/365	$        450,600
Specific Identification Method
Winkin Profit = 139000*1/3 = 46333	$          46,333
Nod Profit = 139000*1/3 = 46333	$          46,333
Binkin Profit = 139000*1/3+405000= 46333+405000	$        451,333

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