Mike and Nancy are equal shareholders in MN Corporation, and S corporation. The
corporation, Mike, and Nancy are calendar year taxpayers. The corporations has been
an S coproation during its entire existence and thus has no accumulated E&P. The
shareholders have no loans to the corporations. The corporations 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
Meal and entertainment expenses
7,800
Interest expense on loans allocable:
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 coprotaiton’s ordinary income and separately stated items
B) Show Mike’s and Nancy’s shares of the items in Part A
C) Compute Mikes and Nancy’s ending stock bases assuming their beginning balances
are $100,000 each. When making basis adjustments, apply the adjustment in the
order outline on pages C:11-24 and C11-25 of the text
