Yates Corporation elects S status, effective for calendar year 2014. Yates' only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1, 2014. The asset is sold at the end of 2014 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 and the basis ($130,800 - $50,200 = $80,600). His share is 60% of $80,600, which is $48,360. The tax on this at 15% is $7,254. However, the correct choice is $5,358, which suggests a calculation error or different tax treatment.

Yates Corporation Elects S Status, Effective for Calendar Year 2014