1. S Corporation is a calendar year taxpayer which elected S corporation status in its first...

 

  

Transcribed Image Text:

1. S Corporation is a calendar year taxpayer which elected S corporation status in its first year of operation. S's common stock is owned by A (200 shares with a $12,000 basis) and B (100 shares with a $6,000 basis). During the current year, S will have the following income and expenses: Business income........ Tax-exempt interest.............. Salary expense Depreciation $ 92,000 $ 1,000 $ 44,000 $8,000 $ 7,000 Property taxes Supplies..... $ 4,000 Interest expense paid on a margin account $ 6,000 maintained with S Corp.'s stock broker....... Gain from the sale of equipment held for two years: § 1245 gain.... $ 7,000 § 1231 gain $ 12,000 ******* STCG from the sale of AT&T stock $7,500 LTCG from the sale of Chrysler stock held for $15,000 two years ******* LTCL from the sale of investment real estate bumiy solpatork $ 9,000 held for two years..... $ 6,000 Bribe of government official. $ 4,500 Recovery of a bad debt previously deducted... (a) How will S Corporation, A and B report these events? Comparend § 704(b)(2) and (c). (b) What is A's basis in his S stock at the end of the current year? (c) Whose accounting method will control the timing of income and deductions? (d) If S realizes a gain upon an involuntary conversion, who makes the election under § 1033 to limit recognition of gain? (e) Would it matter if the equipment would have been property described in § 1221(a)(1) if held by A? 1. S Corporation is a calendar year taxpayer which elected S corporation status in its first year of operation. S's common stock is owned by A (200 shares with a $12,000 basis) and B (100 shares with a $6,000 basis). During the current year, S will have the following income and expenses: Business income........ Tax-exempt interest.............. Salary expense Depreciation $ 92,000 $ 1,000 $ 44,000 $8,000 $ 7,000 Property taxes Supplies..... $ 4,000 Interest expense paid on a margin account $ 6,000 maintained with S Corp.'s stock broker....... Gain from the sale of equipment held for two years: § 1245 gain.... $ 7,000 § 1231 gain $ 12,000 ******* STCG from the sale of AT&T stock $7,500 LTCG from the sale of Chrysler stock held for $15,000 two years ******* LTCL from the sale of investment real estate bumiy solpatork $ 9,000 held for two years..... $ 6,000 Bribe of government official. $ 4,500 Recovery of a bad debt previously deducted... (a) How will S Corporation, A and B report these events? Comparend § 704(b)(2) and (c). (b) What is A's basis in his S stock at the end of the current year? (c) Whose accounting method will control the timing of income and deductions? (d) If S realizes a gain upon an involuntary conversion, who makes the election under § 1033 to limit recognition of gain? (e) Would it matter if the equipment would have been property described in § 1221(a)(1) if held by A?

Answer rating: 100% (QA)

a S Corporation will report the business income taxexempt interest salary expense depreciation prope... View the full answer