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 28 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Question

Quizplus · Accepted Answer

Joe Harry's share of the income for the period he was a shareholder (January 1 to January 28) is calculated using the daily allocation method. The income for the first 28 days is $200,000. Joe's share is 25% of this amount, which is $50,000. However, the correct choice is $28,000 because the daily allocation method considers the entire year's income. Joe's share for 28 days is calculated as (28/365) * $1,460,000 * 25% = $28,000.

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