Determine the tax consequences of the given events

Assignment Help Accounting Basics

Reference no: EM131883652

Problem

Joe Stephens formed Sigma Corporation on January 4 of Year 1, and the corporation immediately made an S election effective for that year. In forming the corporation, Joe contributed $50,000 cash in exchange for 100% of Sigma's stock. Shortly thereafter, the corporation obtained a $75,000 bank loan to assist with operations. Sigma's first two years did not go as well as expected, with Sigma incurring a $60,000 ordinary loss in Year 1 and a $12,000 ordinary loss in Year 2. Moreover, in Year 2, Joe and his wife Marsha divorced. As part of the divorce settlement, on March 31 of Year 2, Joe gave Marsha 50% of the Sigma stock. In Year 3, Sigma's performance improved, with the corporation earning $40,000 of ordinary income. Joe asks your help in determining the tax consequences of these events, particularly the usage of the S corporation losses. At a minimum, you should consider the following resources: IRC Sec. 1366 Reg. Sec. 1.1366-2.

Reference no: EM131883652

Questions Cloud

What is the yield to maturity of this bond : Find the future value of a $900 investment for 2 years with the yield to maturity from part a, compounded semiannually.

Can anyone identify some sources of government data : Determine which informational source provides the best data for them. Which one of the several sites you have reviewed fits your needs? Why?

How much does bill have in his account today : The account has an interest rate of 7.4 % p.a. How much does Bill have in his account today (that is, exactly one year after the initial deposit)?

Auditors test effectiveness of controls to ensure they can : Auditors must confirm that the __________ of Property, Plant, and Equipment agree with the general ledger.

Determine the tax consequences of the given events : Joe asks your help in determining the tax consequences of these events, particularly the usage of the S corporation losses.

How does collateral affect the interest rate on a bond : A bond is a long term promissory note which promises to pay the holder regular cash flows and at expiration the full face value on the face of the bond.

Why investors still face reinvestment risk : If bond investors do not have voting right, what can they do to secure their benefits on the bond issuing company?

Create the journal entry to record regis companys payroll : Create the journal entry to record Regis Company's January 8 (employee) payroll expenses and liabilities. (Round your answers to 2 decimal places.).

What is depreciation expense : Assume the following: Revenue = $1,500; COGS = $450; SGA = $300; EBIT = $600; Taxable income = $525; Net Income = $315. What is Depreciation Expense?

User Account

All Pages