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An S corporation has the following shares outstanding on January1, 20X1:

Mary 400 shares

Frank 500 shares

Joe 800 shares

On June 1, Joe sells 300 of his shares of stock to Gary. The Scorporation’s pass-through taxable income is $30,000. What isGary’s pro rata share of the S corporation’s taxable income for20X1?

A. $3,105

B. $5,294

C. $8,823

D. $14,118

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Jean Keeling
Jean KeelingLv2
28 Sep 2019

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Carmin Kovach is single and has two children from her previousmarriage. Anika,

9, lives with Carmin. Julius, 11, lives with his father, Ray.Carmin pays alimony of

$400 per month to Ray. The payments are to continue until Juliusreaches age 18,

when they will be reduced to $100.

Carmin is 34 and employed as a nuclear engineer with AtomSystems Consultants,

Inc. (ASCI). Her annual salary is $80,000, and ASCI has anextensive fringe

benefits program for its employees.

ASCI has a qualified pension plan that covers all employees.Under the plan,

ASCI matches any contribution to the plan up to 8% of theemployee’s annual salary.

Carmin makes the maximum allowable contribution of $6,400, andit is

matched by ASCI.

ASCI provides medical coverage to all employees but not to theirdependents.

Carmin’s medical coverage costs ASCI $3,000 during the currentyear. She

receives $980 in reimbursements for her medical costs. ASCI alsoprovides employees

with a flexible benefits plan. Carmin pays $2,500 into the plan.She uses

$2,400 to purchase medical coverage for Anika. Her medical,dental, and optometry

costs not covered by insurance total $1,900; the flexiblebenefits plan reimburses

her $100 for these costs.

ASCI also provides employees with group term life insurance oftwice their annual

salary, up to a maximum coverage of $150,000. Carmin’s groupterm life insurance

premiums cost $400. Because of the sensitive and sometimesdangerous

nature of her work, ASCI also provides Carmin with a $300,000whole life insurance

policy. The whole life insurance policy costs $490.

Taking advantage of ASCI’s educational assistance program,during the fall

Carmin enrolls in two law school classes at a local university.ASCI pays her tuition,

fees, books, and other course-related costs totaling $2,300.

Carmin also receives certain other fringe benefits not availableto all employees.

She receives free parking in the company’s security garage thatwould normally

cost $280 per month. In addition, ASCI pays the $1,000 cost ofher nuclear engineer’s

license and $600 per year in professional association dues andprofessional

magazine subscriptions. ASCI also pays Carmin’s $900 dues to ahealth club that is

located in the same building as her office.

Carmin routinely enters sweepstakes contests. This year, she isnotified that

she has won $5,000 in a breakfast cereal promotion. The prize isto be paid equally

over 10 years. She receives the first payment December 28,although she doesn’t

deposit the check in her checking account until January 3.

In February, Carmin’s father dies. Social Security pays her $600as a survivor’s

benefit. She also receives stock valued at $30,000 and herfather’s house, which

has a value of $90,000, as her share of her father’s estate.

Carmin rents out her father’s house on August 1. The monthlyrent is $400,

and the lease agreement is for one year. The lease requires thetenant to pay the first

and last months’ rent and a $400 security deposit. The securitydeposit is to be

returned at the end of the lease if the property is in goodcondition. On August 1,

Carmin receives $1,200 from the tenant per the terms of thelease agreement. In

November, the plumbing freezes and several lines burst. Thetenant has the repairs

made and pays the $300 bill. In December, he reduces his rentalpayment to $100

to compensate for the plumbing repairs. Carmin pays otherdeductible costs for the

rental that total $2,680. The allowable depreciation on therental house is $1,080.

Carmin owns several other investments. She receives thefollowing amounts

(all in cash) from the stocks and bonds she owns:

General Dynamics common stock $ 300

City of Toronto bonds 1,600

State of Nebraska bonds 400

New Jersey economic development bonds 300

Grubstake Mining Development stock 1,000

.

Carmin owns 1,000 shares of Grubstake Mining Development commonstock.

Grubstake is organized as an S corporation and has 100,000shares outstanding.

Grubstake reports taxable income of $200,000 during the currentyear.

Carmin sells the following securities during 2013:

Security Sale Date

Purchase

Date

Sale

Price

Commission

Paid Basis

Nebraska Bonds 3/14/13 10/22/10 $1,900 $ 80 $1,710

Cassill Corporation

Stock

10/18/13 2/19/13 $8,900 $450 $9,630

Carmin purchased 500 shares of General Dynamics stock on July22, 2010, at

a cost of $2,200. On June 15, 2013, she receives 50 shares ofGeneral Dynamics

stock as a dividend. The fair market value of General Dynamicsstock on June 15,

2013, was $3.50 per share.

Carmin slips on a wet spot in front of a computer store duringthe current

year. She breaks her ankle and is unable to work for two weeks.She incurs $1,300

in medical costs, all of which are paid by the owner of thestore. The store also

gives her $1,000 for pain and suffering resulting from theinjury. ASCI continues

to pay her salary during the two weeks she misses because of theaccident. ASCI’s

plan also pays her $1,200 in disability pay for the time she isunable to work.

Calculate Carmin’s adjusted gross income on her 2013 tax return.Then do

one or both of the following, according to your professor’sinstructions:

a. Include a brief explanation of how you determined each itemthat affected

adjusted gross income and any items you excluded from grossincome. Your

solution to the problem should contain a list of each itemincluded in adjusted

gross income and its amount, with the explanations attached.

b. Write a letter to Carmin explaining how you determined eachitem that

affected adjusted gross income and any items you excluded fromgross income.

You should include a list of each item included in adjustedgross income and

its amount.

Carmin Kovach is single and has two children from her previousmarriage. Anika, 9, lives with Carmin. Julius, 11, lives with hisfather, Ray. Carmin pays alimony of $400 per month to Ray. Thepayments are to continue until Julius reaches age 18, when theywill be reduced to $100. Carmin is 34 and employed as a nuclearengineer with Atom Systems Consultants, Inc. (ASCI). Her annualsalary is $80,000, and ASCI has an extensive fringe benefitsprogram for its employees. ASCI has a qualified pension plan thatcovers all employees. Under the plan, ASCI matches any contributionto the plan up to 8% of the employee’s annual salary. Carmin makesthe maximum allowable contribution of $6,400, and it is matched byASCI. ASCI provides medical coverage to all employees but not totheir dependents. Carmin’s medical coverage costs ASCI $3,000during the current year. She receives $980 in reimbursements forher medical costs. ASCI also provides employees with a flexiblebenefits plan. Carmin pays $2,500 into the plan. She uses $2,400 topurchase medical coverage for Anika. Her medical, dental, andoptometry costs not covered by insurance total $1,900; the flexiblebenefits plan reimburses her $100 for these costs. ASCI alsoprovides employees with group term life insurance of twice theirannual salary, up to a maximum coverage of $150,000. Carmin’s groupterm life insurance premiums cost $400. Because of the sensitiveand sometimes dangerous nature of her work, ASCI also providesCarmin with a $300,000 whole life insurance policy. The whole lifeinsurance policy costs $490. Taking advantage of ASCI’s educationalassistance program, during the fall Carmin enrolls in two lawschool classes at a local university. ASCI pays her tuition, fees,books, and other course-related costs totaling $2,300. Carmin alsoreceives certain other fringe benefits not available to allemployees. She receives free parking in the company’s securitygarage that would normally cost $280 per month. In addition, ASCIpays the $1,000 cost of her nuclear engineer’s license and $600 peryear in professional association dues and professional magazinesubscriptions. ASCI also pays Carmin’s $900 dues to a health clubthat is located in the same building as her office. Carminroutinely enters sweepstakes contests. This year, she is notifiedthat she has won $5,000 in a breakfast cereal promotion. The prizeis to be paid equally over 10 years. She receives the first paymentDecember 28, although she doesn’t deposit the check in her checkingaccount until January 3. In February, Carmin’s father dies. SocialSecurity pays her $600 as a survivor’s benefit. She also receivesstock valued at $30,000 and her father’s house, which has a valueof $90,000, as her share of her father’s estate. Carmin rents outher father’s house on August 1. The monthly rent is $400, and thelease agreement is for one year. The lease requires the tenant topay the first and last months’ rent and a $400 security deposit.The security deposit is to be returned at the end of the lease ifthe property is in good condition. On August 1, Carmin receives$1,200 from the tenant per the terms of the lease agreement. InNovember, the plumbing freezes and several lines burst. The tenanthas the repairs made and pays the $300 bill. In December, hereduces his rental payment to $100 to compensate for the plumbingrepairs. Carmin pays other deductible costs for the rental thattotal $2,680. The allowable depreciation on the rental house is$1,080. Carmin owns several other investments. She receives thefollowing amounts (all in cash) from the stocks and bonds she owns:General Dynamics common stock $ 300 City of Toronto bonds 1,600State of Nebraska bonds 400 New Jersey economic development bonds300 Grubstake Mining Development stock 1,000 Carmin owns 1,000shares of Grubstake Mining Development common stock. Grubstake isorganized as an S corporation and has 100,000 shares outstanding.Grubstake reports taxable income of $200,000 during the currentyear. Carmin sells the following securities during 2013: SecuritySale Date Purchase Date Sale Price Commission Paid Basis NebraskaBonds 3/14/13 10/22/10 $1,900 $ 80 $1,710 Cassill Corporation Stock10/18/13 2/19/13 $8,900 $450 $9,630 Carmin purchased 500 shares ofGeneral Dynamics stock on July 22, 2010, at a cost of $2,200. OnJune 15, 2013, she receives 50 shares of General Dynamics stock asa dividend. The fair market value of General Dynamics stock on June15, 2013, was $3.50 per share. Carmin slips on a wet spot in frontof a computer store during the current year. She breaks her ankleand is unable to work for two weeks. She incurs $1,300 in medicalcosts, all of which are paid by the owner of the store. The storealso gives her $1,000 for pain and suffering resulting from theinjury. ASCI continues to pay her salary during the two weeks shemisses because of the accident. ASCI’s plan also pays her $1,200 indisability pay for the time she is unable to work. CalculateCarmin’s adjusted gross income on her 2013 tax return. Then do oneor both of the following, according to your professor’sinstructions: a. Include a brief explanation of how you determinedeach item that affected adjusted gross income and any items youexcluded from gross income. Your solution to the problem shouldcontain a list of each item included in adjusted gross income andits amount, with the explanations attached. b. Write a letter toCarmin explaining how you determined each item that affectedadjusted gross income and any items you excluded from gross income.You should include a list of each item included in adjusted grossincome and its amount.

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