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Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed...

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 2016 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 February 18 (49 days) $ 209,000
February 19 through December 31 (317 days) 424,000
January 1 through December 31, 2016 (366 days) $ 633,000

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

b. On February 18, 2016, Blinkin sells his shares to Nod.

c. On February 18, 2016, Winkin and Nod each sell their shares to Blinkin.

Solutions

Expert Solution

Ans a
In this case there is no need to apply allocation method
as there was no ownership change.Each shareholder report
Income of (633000/3)= $211000
ans b in $
Daily allocation method
Winkin (633000*1/3) 211000
Blinkin (633000*1/3*49/366) 28249
Nod 393751
(211000+(1/3*633000*317/366)
Specific Identification method
Winkin
(209000*1/3)+(424000*1/3) 211000
Blinkin 69667
(209000*1/3)
Nod 352333
(209000*1/3)+(424000*2/3)
ans c Daily allocation method
Winkin (633000*1/3*49/366) 28249
Blinkin (633000*1/3*49/366) 28249
Nod 576503
(1/3*633000*49/366)+(3/3*633000*317/366)
Specific Identification method
Winkin
(209000*1/3) 69667
Blinkin 69667
(209000*1/3)
Nod 493667
(209000*1/3)+(424000*3/3)
If any doubt please comment. If satisfied you can rate

ekkarill92 answered 1 year ago
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