Assume Joe Harry sells his 25% interest in Joe's S Corp., Inc. to Tyrone on January 29.Using the daily allocation method, how much income does Joe Harry report if Joe's S Corp., Inc. earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Question

Quizplus · Accepted Answer

To calculate Joe Harry's income, we need to determine the portion of income he earned during the period he owned the stock. Using the daily allocation method, we can express Joe's S Corp Inc.'s income for the entire year on a per-day basis.

$1,460,000 ÷ 365 days = $4,000 per day

From January 1 to January 29 (29 days), the company earned $116,000 ($4,000 per day x 29 days). Since Joe Harry owned 25% of the company during this period, his share of the income is $29,000 ($116,000 x 0.25). Therefore, Joe Harry reports $29,000 of income from the sale of his stock.

Assume Joe Harry Sells His 25% Interest in Joe's S