Mira and Lemma are equal owners of an entity. Each contributed $25,0.docx

This preview shows page 1 - 3 out of 3 pages.

The preview shows page 2 - 3 out of 3 pages.
Mira and Lemma are equal owners of an entity. Eachcontributed $25,000 cash to the entity. In addition, the entityobtains a loan of $100,000. The profits for the year are$30,000. Determine Mira and Lemma\'s basis at the end ofthe period assuming the entity is a partnerships, a Ccorporation, or a S corporation.a. If the entity is a partnership, Mira and Lemma each have abasis of $_________ at the end of the year.b. If the entity is a C corporation, Mira and Lemma each havea basis of $_________ at the end of the year.c. If the entity is an S corporation, Mira and Lemma eachhave a basis of $_________ at the end of the year.
mentioned earlier assuming tax rate to be 20%Firstit is taxed in the hands of C CoporationProfitreported 30,000Less : Taxe @ 20 % (Assumed)(6,000)Profit after taxes 24,000Assumingentire amounts is paid to shareholdersHence eachShareholder gets equal shareI.e. Mira = $ 24000 *50%$12,000I.e. Lemma = $ 24000 *50% $12,000Oneof the disadvantage of C Corporation is it is double taxationentityi.e. Profits are first taxed at entity level then aftertransferring share to shareholdersthey are again taxablein the hands of share holders.In case it is SCorporationIn Case of an S corporation, the profits arepassed on to the shareholders, and are taxed based onpersonal returns.So entire amount of Profit i.e $30000 willbe distributed to sharedholeder i.e Mira and lemma in theratio of there holdingsi.e. 50 % eachAssuming entireamounts is paid to shareholdersHenceI.e. Mira = $30000 *50% $15,000I.e. Lemma = $ 30000 *50% $15,000
End of preview. Want to read all 3 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Fall
Professor
Johnson
Tags
Corporation, Taxation in the United States, C CORPORATION, Mira

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture