Arizona Corporation (a calendar year S corporation) has book income of $175,000

Question

Arizona Corporation (a calendar year S corporation) has book income of $175,000 and is owned equally by five shareholders. The following accounts are included in calculating book income:

Interest Income $25,000

Penalties ($500)

1231 Gain $9,000

Long Term Capital Loss 2,000

1245 Depreciation Recapture $10,000

Cash Distributions to Shareholders (total) ($20,000)

Rent Expense ($23,000)

Postage ($3,000)

Wages to Owners ($30,000)

a. Compute Arizona Corporation’s nonseparately computed income or loss for the tax year.

b. How much ordinary income is allocated to each shareholder?

Explanation / Answer

a. Computed income or loss for the year

Book Income $ 175000

Added:

Dividend distribution $ 20000

wages to owners $ 30000

Long term capital loss $2000

Penalty $ 500

-------------------------

Total profit for the year $ 227500

b. ordinary income is allocated to each shareholder..

Each shareholder share = $ 227500/5 = $ 45500

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