Exercise 2221 Algorithmic LO 7 Vogel Inc an S corporation fo

Exercise 22-21 (Algorithmic) (LO. 7)

Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $224,800 ten years ago and is currently worth $562,000.

If an amount is zero, enter, \"0\".

a. As a result of the distribution, Vogel recognizes _____________(A CAPITAL GAIN/ORDINARY INCOME) of $____________ which is reported on Schedule K, and ________________________(ALL OF IT PASSES THROUGH TO JARMARI / A PROPORTIONATE SHARE OF IT PASSES THROUGH THE SHAREHOLDERS)

b. The net effect of the distribution on Vogel\'s AAA is ____________(A DECREASE/AN INCREASE) of $___________________.

c. If the land had been purchased for $562,000 and was currently worth $224,800, Vogel recognizes a loss $___________ and the net effect on Vogel\'s AAA is $_______________. Jamari would take a $_____________ basis in the land.

Solution

a. As a result of the distribution, Vogel recognizes Capital Gain of $337200 which is reported on Schedule K, and ALL OF IT PASSES THROUGH TO JARMARI.

b. The net effect of the distribution on Vogel\'s AAA is A DECREASE of $ 224,800

c. If the land had been purchased for $562,000 and was currently worth $224,800, Vogel recognizes a loss $ 337200 if sold and $ 0 if not sold and the net effect on Vogel\'s AAA is $ decrease of $ 224800 Jamari would take a $ 224800 basis in the land.