John Mason operates a consulting business, Mason Enterprises, as a sole proprietorship. He had to transfer $100,000 of stocks and securities into Mason Enterprises’s name to show financial viability for the business
John Mason operates a consulting business, Mason Enterprises, as a sole proprietorship. He had to transfer $100,000 of stocks and securities into Mason Enterprises’s name to show financial viability for the business. During the current year, the business had the following income and expenses from operations:
Consulting revenue
$125,000
Travel expenses
40,000
Transportation
3,000
Advertising
7,000
Office expense
3,000
Telephone
1,000
Dividend income
5,000
Interest income
2,000
Charitable contribution
1,000
Political contribution
6,000
Determine the Schedule C net income. How are items not included in the Schedule C net income reported?
27. John received a proportionate nonliquidating distribution of $10,000 cash and inventory with a zero basis and a fair market value of $12,000 from a partnership in which he has a basis of $8,000.
a. What are the tax effects of these distributions?
b. How would your answer change if this was a liquidating distribution?
c. How would your answers change on the nonliquidating and liquidating distributions if his basis in the partnership was $15,000?
48. During the current year, Biggie, Inc., a delivery company operating as an S corporation, reported the following results from operations:
Revenue
$280,000
Salaries
130,000
Truck expense
30,000
Taxes
18,000
Section 1231 loss
8,000
Traffic fines
1,200
Interest expense on truck loans
2,000
Interest income (corporate bonds)
500
What are the corporation’s net income and its separately reported items?
57. An S corporation shareholder is currently in the 28 percent tax bracket. His S corporation is going to pass a very large loss through to him that would otherwise offset other income, except for the fact that he lacks sufficient stock basis to absorb the loss. The shareholder is coming to your office tomorrow to discuss the situation. Make a list of questions you will ask before you will advise him on possible alternatives.
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