Reference no: EM132663998

Question - Taxation of an S Corporation

Jamya and Manu are the shareholders of Buffalo Corporation an S Corporation. They each own 50% of Buffalo Corporation. In Year 1, Jamya and Manu each received distributions of $30,000 from Buffalo Corporation. In Year 2, they received distributions each of $50,000.

Buffalo Corporation (an S Corporation) Income Statement, Dec. 31, 20x8 and 20X9

20X8 (Year 1) 20X9 (Year 2)

Sales revenue $600,000 $860,000

Cost of goods sold (80,000) (120,000)

Salary to shareholders Manu and Jamya (80,000) (160,000)

Employee wages (50,000) (100,000)

Depreciation expense (40,000) (80,000)

Section 179 expense (60,000) (100,000)

Interest income (related to business) 24,000 45,000

Municipal bond income 3,000 8,000

Government fines 0 (4000)

Overall net income 317,000 349,000

Distributions $60,000 $100,000

Requirements -

1. Determine and explain the amount of ordinary income and separately stated items allocated to them for Year 1 based on the information given in the table above. Assume that Buffalo Corporation has qualified property with an unadjusted basis of $400,000.

2. Complete the S Corporation Form 1120S, Schedule K for Year 1 and Schedule K-1 for Jamya.

3. Determine and explain the amount of ordinary income and separately stated items are allocated to them for Year 2 based on the information given in the table above, assuming Buffalo Corp has qualified property with an unadjusted basis of $400,000.

4. Complete the S Corporation Form 1120S, Schedule K for Year 2 and Schedule K-1 for Manu.