Mike and Nancy are equal shareholders in MN Corporation, an S corporation

C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments

Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year:

Sales $300,000
Cost of goods sold 140,000
Dividends on corporate investments 10,000
Tax-exempt interest income 3,000
Section 1245 gain (recapture) on equipment sale 22,000
Section 1231 gain on equipment sale 12,000
Long-term capital gain on stock sale 8,000
Long-term capital loss on stock sale 7,000
Short-term capital loss on stock sale 6,000
Depreciation 18,000
Salary to Nancy 20,000
Meals and entertainment expenses 7,800
Interest expense on loans allocable to:
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principal payment on business loan 9,000
Charitable contributions 2,000
Distributions to shareholders ($15,000 each) 30,000

a. Compute the S corporation’s ordinary income and separately stated items.
b. Show Mike’s and Nancy’s shares of the items in Part a.
c. Compute Mike’s and Nancy’s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.


Click here for the solution: Mike and Nancy are equal shareholders in MN Corporation, an S corporation

Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010

Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a depreciable basis of $39,080 and an estimated useful life of 5 years. Its estimated salvage value is $1,080. Assume no election to expense is made and no bonus depreciation is taken.

a. Calculate the amount of depreciation for 2010 using financial accounting straight-line depreciation (not the straight-line MACRS election) over the truck's estimated useful life.
b. Calculate the amount of depreciation for 2010 using the straight-line depreciation election under MACRS over the minimum number of years.
c. Calculate the amount of accelerated depreciation for 2010 that Mike could deduct using MACRS.


Click here for the solution: Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010

On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items

Problem 2-2 On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Richard Land 12000 30000 400 Building 38000 70000 Mortgage on Land and Building 60000 60000 Mike Machines 25000 40000 300 Patrick Truck 15000 10000 50 Sean Legal Services 0 10000 100 Richard purchased the building and land several years ago, $50,000 for the building, and $12,000 for the land. Depreciation has been claimed using the straight line method. In addition to the machines, Mike received a note from Brothers corp. due in 3 years for $10,000 at the market interest rate. Mike originally purchase the machines 3 years ago for $50,000. In addition to the truck, Patrick received a cash payment of $5,000. Patrick’s truck is 2 years old with an original price of $20,000.

(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Richard, Mike, Patrick, Sean, and Brothers?
(c) What is each shareholder’s basis in their Brothers stock? When does the holding period for the stock begin?
(d) What is Brothers’ basis in its property and services? When does the holding period for each property begin?

Click here for the solution: On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items