CHAPTER 22 – PROBLEM 50 & 51
50. (LO3) Jack and Jill are owners of UpAHill, an S corporation. They own 25 and 75 percent, respectively.
a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above?
Description
Year 1
Year 2
Explanation
Sales revenue
(1)
175,000
(2)
310,000
Cost of goods sold
(3)
(60,000)
(4)
(85,000)
Salary to Jack and Jill
(5)
(40,000)
(6)
(50,000)
Employee wages
(7)
(15,000)
(8)
(20,000)
Depreciation expense
(9)
(10,000)
(10)
(15,000)
Miscellaneous
(11)
(7,500)
(12)
(9,000)
Total expenses
(13)
(132,500)
(14)
(179,000)
Year 1: (3) + (5) + (7) + (9) + (11)
Year 2: (4) + (6) + (8) + (10) + (12)
Ordinary Income
(15)
42,500
(16)
131,000
Year 1: (1) – (13);
Year 2: (2) – (14)
Interest income
(17)
2,000
(18)
2,500
Dividend income
(19)
500
(20)
1,000
Investment income
(21)
2,500
(22)
3,500
Year 1: (17) + (19),
Year 2: (18) + (20)
Net Income
(23)
45,000
(24)
134,500
Year 1: (15) + (21),
Year 2: (16) + (22)
Jack's Ownership – 25%
Ordinary income
(25)
10,625
(26)
32,750
Year 1: (15) * 25%
Year 2: (16) * 25%
Interest income
(27)
500
(28)
625
Year 1: 25% * (17),
Year 2: 25% * (18)
Dividends income
(29)
125
(30)
250
Year 1: 25% * (19),
Year 2: 25% * (20)
Jack's Total investment income
(31)
625
(32)
875
Year 1: (25) + (27)
Year 2: (26) + (28)
Jack's Net income
(33)
11,250
(34)
33,625
Year 1: (25) + (31)
Year 2: (26) + (32)
Jill's Ownership – 75%
Ordinary income
(35)
31,875
(36)
98,250
Year 1: (15) * 75%
Year 2: (16) * 75%
Interest income
(37)
1,500
(38)
1,875
Year 1: 75% * (17),
Year 2: 75% * (18)
Dividends income
(39)...