Chapter 22 S Corporations

51. [LO 3, 4] Assume Jack and Jill, 25- and 75-percent shareholders in UpAHill corporation have tax bases in their shares at the beginning of year 1 of $24,000 and $56,000, respectively. Also assume no distributions were made. Given the income statement above, what are their tax bases in their shares at the end of year 1?

Use the following information to complete problems 52 and 53:

Falcons Corporation (an S corporation) Income Statement December 31, year 1
	Year 1	Year 2
Sales Revenue	$300,000	$430,000
Cost of Goods Sold	(40,000)	(60,000)
Salary to owners Julio and Milania	(40,000)	(80,000)
Employee Wages	(25,000)	(50,000)
Depreciation Expense	(20,000)	(40,000)
Section 179 Expense	(30,000)	(50,000)
Interest income	12,000	22,500
Municipal Bond Income	1,500	4,000
Government Fines	0	(2,000)
Overall Net Income	$158,500	$174,500
Distributions	$30,000	$50,000

52. [LO 3] Julio and Milania are owners of Falcons Corporation, an S corporation. They each own 50 percent of Falcons Corporation. In year 1, Julio and Milani received distributions of $20,000 and $10,000, respectively, from Falcons Corporation.

a. What amount of ordinary income and separately stated items are allocated to them for year 1 based on the information above?

b. Complete Falcons Form 1120S, Schedule K for year 1.

c. Complete Julio’s 1120S, Schedule K-1 for year 1.

53. [LO 3] In year 2, Julio and Milani received distributions of $20,000 and $30,000, respectively, from Falcons Corporation.

a. What amount of ordinary income and separately stated items are allocated to them for

.

b. Complete Falcons Form 1120S, Schedule K for year 2.

c. Complete Milania’s 1120S, Schedule K-1 for year 2.

54. [LO 4] Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $25,000 to get things started. Ron was a bit short on cash but had a parcel of land valued at $60,000 (basis of $50,000) that he decided to contribute. The land was encumbered by a $35,000 mortgage. What tax bases will each of the three have in his or her or his stock of Bumblebore?

55. [LO 4] Jessica is a one-third owner in Bikes-R-Us, an S corporation that experienced a $45,000 loss this year (year 1). If her stock basis is $10,000 at the beginning of the year, how much of this loss clears the hurdle for deductibility (assume at-risk limitation equals the tax basis limitation)? If she cannot deduct the whole loss, what happens to the remainder? Is she able to deduct the entire loss if she sells her stock at year-end?