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.