Question

Ben and Jerry were shareholders of water ice, inc., an s corporation. On january 1, year 1, Ben owned 40 shares and Jerry owned 60 shares. Ben sold his shares to Joe for $10,000 on March 31, 2011. The corporation reported a $50,000 loss at the end of 2011. How much of the loss is allocated to Joe?

A. $12,500.
B. $10,000.
C. $20,000.
D. $15,068.

Answer 1

Option D. $15,068

Step-by-step explanation:

The share of Ben will 40% of the loss if he does not sells the shares which is:

Ben's Share of Loss = $50,000 * 40% = $20,000

But Ben sold his 40% to Joe on March 31, 2011. This means 90/365 days of the year, Ben owned the shares. Hence:

Ben's share of loss = $20,000 * 90/ 365 = $4,931.5

The remainder is Joe's share of loss which is:

Joe's Share of Loss = $20,000 - $4,931.5 = $15,068

Hence the option D is correct.