Lan Corp., an accrual-basis calendar year repair-service corporation, began business on Monday, January 3, Year 4. Lans valid S corporation election took effect retroactively on January 3, Year 4.

For items 1 through 4, determine the amount, if any, using the fact pattern for each item.

Assume the following facts:

Lans Year 4 books recorded the following items:

Gross receipts	$7,260
Interest income on investments	50
Charitable contributions	1,000
Supplies	1,120

1

What amount of net business income should Lan report on its Year 4 Form 1120S, U.S. Income Tax Return for an S Corporation, Schedule K?

Assume the following facts:

As of January 3, Year 4, Taylor and Barr each owned 100 shares of the 200 issued shares of Lan stock. On January 31, Year 4, Taylor and Barr each sold 20 shares to Pike. No election was made to terminate the tax year. Lan had net business income of $14,520 for the year ended December 31, Year 4, and made no distributions to its shareholders. Lans Year 4 calendar year had 363 days.

2

What amount of net business income should have been reported on Pikes Year 4 Schedule K-1 from Lan? (Year 4 is a 363-day tax year.) Round the answer to the nearest hundred.

Assume the following facts:

Pike purchased 40 Lan shares on January 31, Year 4, for $4,000. Lan made no distributions to shareholders, and Pikes Year 4 Schedule K-1 from Lan reported:

Ordinary business loss	($1,000)
Municipal bond interest income	$150

3

What was Pikes basis in his Lan stock at December 31, Year 4?

Assume the following facts:

On January 3, Year 4, Taylor and Barr each owned 100 shares of the 200 issued shares of Lan stock. Taylors basis in Lan shares on that date was $10,000. Taylor sold all of his Lan shares to Pike on January 31, Year 4, and Lan made a valid election to terminate its tax year. Taylors share of ordinary income from Lan prior to the sale was $2,000. Lan made a cash distribution of $3,000 to Taylor on January 30, Year 4.

4

What was Taylors basis in Lan shares for determining gain or loss from the sale to Pike?

For items 5 and 6, indicate if the statement is true or false regarding Lans S corporation status.

5	Lan issues shares of both preferred and common stock to shareholders at inception on January 3, Year 4. This will not affect Lans S corporation eligibility.
6	Lan, an S corporation since inception, has passive investment income for 3 consecutive years following the year a valid S corporation election takes effect. Lans S corporation election is terminated as of the first day of the fourth year.

A	$0
B	$1,700
C	$2,500
D	$2,700
E	$3,150
F	$3,750
G	$4,700
H	$5,000
I	$5,700
J	$6,140
K	$9,000
L	$10,000