Problem 22-24 (Algorithmic) (LO. 5, 6) The profit and loss statement of Kitsch L

Question

Problem 22-24 (Algorithmic) (LO. 5, 6)

The profit and loss statement of Kitsch Ltd., an S corporation, shows $125,000 book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information about items that are included in book income.

a. The entity's nonseparately stated computed is $_______________.

b. The portion of nonseparately stated income or loss for James Billings, one of the the Kitsch shareholders, is $_______________.

c. What is James Billings’ share of tax-exempt interest income, if any? Round your answer to the nearest value.
$____________________

Is the income taxable to him this year?
_______________(TAXABLE/NONTAXABLE)

Selling expenses ($25,000) Tax-exempt interest income 3,750 Dividends received 11,250 §1231 gain 8,750 Depreciation recapture income 12,500 Net income from passive real estate rentals 6,250 Long-term capital loss (7,500) Salary paid to owners (each) (15,000) Cost of goods sold (112,500)

Explanation / Answer

SOLUTION

A.

B.

C. James Billings’ share of tax-exempt interest income:

D. The income taxable to him this year $25,625 is not taxable.

Particulars Amount ($) Book income 125,000 Add: Long-term capital loss 7,500 132,500 Less: Dividends received (11,250) Tax-exempt interest income (8,750) Section 1231 gain    (3,750) Recovery of bad debts (6,250) Nonseparately stated income 102,500

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