Option #1: Taxation of an S Corporation
Jamya and Manu are the shareholders of Buffalo Corporation an S Corporation. They each own 50% of Buffalo Corporation. In Year 1, Jamya and Manu each received distributions of $30,000 from Buffalo Corporation. In Year 2, they received distributions each of $50,000.
Buffalo Corporation (an S Corporation)
Income Statement, Dec. 31, 20×8 and 20X9
20X8(Year 1) 20X9(Year 2)
Sales revenue $600,000 $860,000
Cost of goods sold (80,000) (120,000)
Salary to shareholders Manu and Jamya (80,000) (160,000)
Employee wages (50,000) (100,000)
Depreciation expense (40,000) (80,000)
Section 179 expense (60,000) (100,000)
Interest income ( related to business) 24,000 45,000
Municipal bond income 3,000 8,000
Government fines 0 (4000)
Overall net income 317,000 349,000
Distributions $60,000 $100,000
1. Determine and explain the amount of ordinary income and separately stated items allocated to them for Year 1 based on the information given in the table above. Assume that Buffalo Corporation has qualified property with an unadjusted basis of $400,000.
2. Using ProConnect and/or fill in forms, complete the S Corporation Form 1120S, Schedule K for Year 1 and Schedule K-1 for Jamya.
3. Determine and explain the amount of ordinary income and separately stated items are allocated to them for Year 2 based on the information given in the table above, assuming Buffalo Corp has qualified property with an unadjusted basis of $400,000.
4. Using ProConnect and/or fill in forms, complete the S Corporation Form 1120S, Schedule K for Year 2 and Schedule K-1 for Manu.
Submit a Schedule K, and one Schedule K-1 for Jamya and one for Manu and a Word document for questions a), and b), or one Word document with embedded Schedule K, and Schedule K-1 in the document.
Your paper must meet the following requirements:
Your written paper should be a 4-5-page Word document, not counting the title and reference pages, which you must include.
Use terms, evidence, and concepts from class readings.
You need to cite at least three sources for this assignment.