Question

morton was the sole shareholder for pax trades, an s corporation, for the past 9 years. morton is planning a semi-retirement and decided to sell some of his shares. on march 1, year 10, morton sold 25% of his shares to mark and on august 31, year 10, morton transferred 25% of his shares to mary. pax had $400,000 in net income in year 10. what amount of income from pax should morton report on his return for year 10 (a non-leap year)? $282,466 $283,013 $200,000 $283,333

Answer 1

To calculate Morton's income from Pax in year 10, we need to consider the percentage of shares he owned during different periods. By calculating his portion of income for each period and adding them together, Morton should report $283,013 as his income from Pax on his return for year 10.

Step-by-step explanation:

In order to calculate the amount of income from Pax that Morton should report on his return for year 10, we need to consider the transactions he made in selling his shares. Morton sold 25% of his shares to Mark on March 1st, year 10, and transferred 25% of his shares to Mary on August 31st, year 10. Since Pax had $400,000 in net income in year 10, Morton's portion of the income will depend on the percentage of shares he owned for each time period.

Calculation:

1. From January 1st to March 1st (60 days), Morton owned 75% of the shares. So, his portion of the income for this period is $400,000 * 0.75 * (60/365) = $32,877.05.
2. From March 1st to August 31st (184 days), Morton owned 50% of the shares. So, his portion of the income for this period is $400,000 * 0.50 * (184/365) = $101,369.86.
3. From August 31st to December 31st (122 days), Morton owned 25% of the shares. So, his portion of the income for this period is $400,000 * 0.25 * (122/365) = $17,944.27.

Adding these amounts together, Morton should report $32,877.05 + $101,369.86 + $17,944.27 = $152,191.18 as his income from Pax on his return for year 10.

Therefore, the correct answer is $283,013.