[kxmcpa]

Need help with this question….

As of January 1, 2011, Kane owned all the 100 issued shares of Manning Corp., a calendar-year S corporation. On the

41st day of 2011, Kane sold 25 of the Manning shares to Rodgers. For the year ended December 31, 2011 (a 365-day

calendar year), Manning had $73,000 in nonseparately stated income and made no distributions to its shareholders.

What amount of nonseparately stated income from Manning should be reported on Kane’s 2011 tax return?

A. $56,800

B. $0

C. $16,250

D. $54,750

Answer (A) is correct. Each shareholder shall include in gross income the pro rata share of the S corporation’s

income. The pro rata share is the taxpayer’s share of the corporation’s income after assigning an equal portion

of the income to each day of the taxable year and then dividing that portion pro rata among the shares

outstanding on each day. Therefore, each day of the year will be assigned $200 of income ($73,000 ÷ 365).

Kane’s share will be $56,800 [$8,200 (41 days × $200 × 100% ownership) plus $48,600 (324 days × $200 ×

75% ownership)].

I don’t understanding why the Answer (A) is correct?

dream come true!(????)

[StudyHarder]

You have to allocate the nonseparately stated income pro-rata when you're dealing with a S corporation.

Since Kane owned 100% of the stock for the first 41 days, the formula would be:

(41 / 365 days) x $73,000 x 100% = $8,200

Then since Kane sold 25 shares (or 25%) of his shares, his ownership decreases to 75%. The formula would be:

Next 324 days (365 – 41):

(324 / 365 days) x $73,000 x 75% = $48,600

End Result:

$8,200 + $48,600 = $56,800

REG - 11/12 - 87
BEC - 12/12 - 84
AUD - 5/13 - 97
FAR - 8/13 - 84

Ethics - DONE

Class of 2012 - 2013

Sending in License as we speak!

[kxmcpa]

THANK YOU! “StudyHarder”

dream come true!(????)

[Author]

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