Question

Janeway owns 25 percent of United Inc., an S-Corp.

United had the following financial activity for the year:

Gross Receipts from sales	$900,000
Cost of Goods Sold	(360,000)
Operating Expenses	(160,000)
Meals	(20,000)
Sec. 1231 gain on equipment sale	4,000
Distribution to shareholders	(100,000)

a. Assume Janeway's adjusted basis in her shares of United equaled $30,000 at the beginning of the year. What is Janeway’s adjusted basis at the end of the year?

b. Assume Janeway's adjusted basis her shares of United equaled $30,000 at the beginning of the year and that United’s debt increased by $50,000. What is Janeway’s adjusted basis at the end of the year?

Answer 1

	a)
	Particulars	Amount
	Gross Receipts from sales	$900,000
	Sec. 1231 gain on equipment sale	$4,000
	Cost of Goods Sold	($360,000)
	Operating Expenses	($160,000)
	Meals	($20,000)
	Distribution to shareholders	($100,000)
	Net Income	$264,000
	Calculation of share
	Janeway share (264000*25%)	$66,000
Add:	Opening share	$30,000
	Closing share	$96,000
	b)
	If debt is increased by $50000 then his share will get decreased by 25% of $50000
	$50000 * 25%
	$12,500
	Janeway share will be ($30000 - $12500) = $17500