Platte River Corporation is a calendar year S corporation. At the beginning of the year, Mr. Reeves owned 100% of Platte River's outstanding stock. On June 30 of the current year, he gave 25% of the stock to his son Mark and 10% of the stock to his daughter Megan. Platte River's ordinary income for the year was $220,000. What portion of this income must each shareholder report?
A) Mr. Reeves, $220,000; Mark, $0; Megan, $0
B) Mr. Reeves, $143,000; Mark, $55,000; Megan, $22,000
C) Mr. Reeves, $181,500; Mark, $27,500; Megan, $11,000
D) Mr. Reeves, $73,333; Mark, $73,333; Megan, $73,333

Question

Quizplus · Accepted Answer

Mr. Reeves owned 100% of Platte River's outstanding stock for the first half of the year and 75% (100% - 25% given to Mark) for the second half of the year. Therefore, he must report 50% of the income (half of the year he owned 100% and half of the year he owned 75%). Mark owned 25% of the stock for half of the year and must report 25% of the income. Megan owned 10% of the stock for half of the year and must report 10% of the income. 
Mr. Reeves: $220,000 x 50% = $110,000 of income to report
Mark: $220,000 x 25% = $55,000 of income to report
Megan: $220,000 x 10% = $22,000 of income to report 
Therefore, the correct answer is C.

Platte River Corporation Is a Calendar Year S Corporation