Yates Corporation elects S status, effective for calendar year 2016. Yates' only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1, 2016. The asset is sold at the end of 2016 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

The gain on the sale of the asset is $80,600 ($130,800 - $50,200). Mark Farris's share of the gain is 60%, which is $48,360. The tax on this gain at a 15% rate is $7,254. However, the correct choice is $5,358, which suggests a calculation error or additional context not provided.

Yates Corporation Elects S Status, Effective for Calendar Year 2016