An electing S corporation has a $30,000 ordinary loss for the non- leap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one- half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Sonya?

Question

Quizplus · Accepted Answer

Since Beverly gave her one-half of the S corporation stock to her daughter Becky on the 146th day of the year, we need to prorate the ordinary loss allocation based on the number of days each shareholder held the stock.

Sonya held the stock for the entire non-leap year (365 days) and Beverly held the stock for the first 145 days of the year. Therefore, Sonya is allocated 365/365 x $30,000 = $30,000 of the ordinary loss.

Becky held the stock for the remaining 220 days of the year (365 - 145). Therefore, Becky is allocated 220/365 x $30,000 = $18,082 of the ordinary loss.

Since Sonya and Beverly each owned one-half of the stock for the first 145 days of the year, we need to prorate their allocation based on the number of days each shareholder held the stock.

Sonya held the stock for 72.5 days (half of 145) and Beverly held the stock for the other 72.5 days (half of 145). Therefore, Beverly is allocated 72.5/145 x $30,000 = $15,000 of the ordinary loss.

In summary, Sonya is allocated $30,000, Becky is allocated $18,082, and Beverly is allocated $15,000. Therefore, the amount of the ordinary loss allocated to Sonya is $30,000 - ($18,082 + $15,000) = $6,918, which is closest to answer choice B ($6,000). However, the closest answer is actually answer choice C ($15,000) when rounded to the nearest thousand.

An Electing S Corporation Has a $30,000 Ordinary Loss for the Non-