Question

1. Ragan owns 65% of Nada stock (S-Corporation) throughout the year. Ragan’s beginning of the year stock basis is $20,000. She has an additional stock purchase (investment) during the year of $10,000. She also loans the corporation $80,000 during the year. Nada S Corporation has beginning AAA of $250,000 and its Form 1120S shows the following information. 5 points

Sales                             $500,000

Distribution to Ragan    $30,000

Dividend Income          $15,000

COGS                            $320,000

Business Fine/Penalty   $50,000

Long term capital gain $25,000

Tax Exempt Income      $10,000

1. What is Nada’s end of the year AAA balance?
2. What is Ragan’s end of the year stock basis?

Answer 1

a) Computation of Nada's end of the year AAA balance :

Initially , lets calculate non-seperately stated ordinary income:

Particulars	Amount in $
Sales	5,00,000
Less: COGS	3,20,000
Less: Business Fine/ Penalty	50,000
Non- sperately stated ordinary income	1,30,000

Now Let's compute year end AAA balance;

Particulars	Amount in $
Non- seperately stated ordinary income as computed above	1,30,000
Less: Distribution to Ragan	30,000
Add: Dividend Income	15,000
Add: Long term Capital gain	25,000
AAA balance during the year	1,40,000
Nada's Beginning AAA Balance (As Given)	2,50,000
Nada's Ending AAA Balance	3,90,000

Note: Adjustments to AAA :

Increase by - i) Schedule K income items other than tax exempt income

ii) Non seperately computed income

Decrease by - i) Negative Schedule K items other than districutions (eg. losses and deductions)

ii) Any portion of distributions that is considered to be tax free from the AAA (but not below zero)

b) Computation fo Ragan's end of the year Stock basis:

Particulars	Amount in $
Beginning Stock Basis	20,000
Add: Additional Stock Basis (Purchases)	10,000
Add: Proportion of non seperately stated income ($1,30,000*65%)	84,500
Add: Proportion of Dividen Income ($15,000*65%)	9,750
Add: Proportion of Long term capital gain ($25,000*65%)	16,250
Add: Proportion of Tax Exempt Income ($10,000*65%)	6,500
Ragan's Year End Stock Basis	1,47,000