The Madison Restaurant was formed a S corporation at the end of last year. Bob Buron,
owns 60% of the stock, manages the restaurant. Ray Huges owns the remaining 40%
of the stock. Mr. Buron contributed $30,000 of cash and services worth $35,000
to start the S corporation. Mr. Huges contributed property with a cost to him of
$50,000 and a fair market value of $75,000 to also start the S Corp.
Below are pertinent facts for the current year:
Cost of Goods Sold 460,000
Charitable Contributions 8,000
Depreciation 25,000
Sales 980,000
Long Term Capital Gain 12,000
Repairs and Maintenance 10,000
Distribution to Mr. Buron 66,000
Section 1231 gain 8,500
Dividends received 1,500
Distribution to Mr. Huges 44,000
Salary to Mr. Buron 70,000
Municipal Bond Interest Received 1,000
Short Term Capital Loss 7,000
Other Salaries 235,000
1. Calculate (and show computations) of the S Corporation''''s ordinary taxable income:
2. List which items are separately stated for the S Corporation.
3. What is Mr. Burton''s stock Basis at the end of the year? (show computations)
4. What is Mr. Hughes Stock basis at the end of the year? (show computations)
5. If the S Corporation has an ordinary loss for the next year of $250,000, how much can Mr. Hughes deduct? (show computations)