Question
In: Accounting
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 | |||
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