Question

Steven, Jennifer and Randy are all 1/3 shareholders in a calendar year-end S corporation that generated $90,000 of business income this year (not a leap year). Randy suffered some health issues earlier in the year and was required to sell his shares equally to Steven and Jennifer on June 29 to generate some cash to pay his medical bills. How much S corporation business income will be allocated to Randy using the daily method?

Answer 1

Randy will be allocated $14,712.01 of the S corporation business income for the year. This amount is calculated by determining his daily earnings from the S corporation and multiplying that by the number of days he held his shares before selling them.

Step-by-step explanation:

The student has asked how much S corporation business income will be allocated to Randy using the daily method. Assuming a standard calendar year with 365 days, Randy owned his 1/3 share for 179 days (from January 1 to June 29). We calculate Randy's allocation by dividing the $90,000 annual income into a daily amount and then multiply that by the number of days Randy held his shares.

To find the daily income, we divide the total income by 365 days:

$90,000 / 365 = $246.58 per day

Randy's share per day is 1/3 of the daily income:

$246.58 / 3 = $82.19 per day

Therefore, Randy's allocation for 179 days is:

$82.19 * 179 = $14,712.01

Randy will be allocated $14,712.01 of the S corporation business income for the year.