Yates Corporation elects S status,effective for calendar year 2013.Yates' only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1,2013.The asset is sold at the end of 2013 for $130,800.What amount must Mark Farris,a 60% owner and subject to a 15% income tax rate,pay,if any?

Question

Quizplus · Accepted Answer

Mark Farris's share of the gain is 60% of the difference between the sale price ($130,800) and the basis ($50,200), which is $48,360. At a 15% tax rate, he pays $7,254. However, the question asks for the amount he must pay, which is 15% of his share of the gain, resulting in $5,358.

Yates Corporation Elects S Status,effective for Calendar Year 2013