Reference no: EM132933318

Question - An entity reports the following income for the current year.

Operations $92,000

Tax-exempt interest income $19,000

Long-term capital gain $60,000

The entity holds earnings and profits (AAA for an S corporation) of $900,000 at the beginning of the year. A distribution of $200,000 is made to the owners.

a. Determine the income for each entity type below:

(1) If the entity is a C corporation then the taxable income is $____.

(2) If the entity is an S-corporation then the ordinary income of the corporation is $___ and the separately stated taxable items are $___.

b. Determine the effect of the distribution on the shareholders for the entity. Assume shareholder have sufficient stock basis.

(1) C corporation: Because the corporation has ending E & P of $___, the shareholders have dividend income of $200,000.

(2) S corporation: Shareholders have a return of capital of $200,000.