income of $200,000 and operating expenses of $100,000. In addition, Hyacinth had
ID: 2556759 • Letter: I
Question
income of $200,000 and operating expenses of $100,000. In addition, Hyacinth had a long-term capital loss of $9,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $50,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2017m a. Increases Norma's taxable income by $97,000 ($100,000 ordinary business income 4. Norma formed Hyacinth Enterprises, a proprietorship, in 2017. In its first year, Hyacinth had operating $3,000 long-term capital loss). b. Increases Norma's taxable income by $41,000($50,000 ordinary business income- $9,000 long-term capital loss). c. Increases Norma's taxable income by $100,000 d. Increases Norma's taxable income by $50,000 e. None of the above. 5. Glen and Michael are Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. g the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable i ncome of Trout, Glen, and Michael. Trout pays tax on $0 income, Glen's taxable income increases by $60,000, and Michael's a. taxable income increases by $60,000. Trout pays tax on $280,000 income, Glen's taxable income increases by $60,000, and Michael's taxable income increases by $60,000 b. c. Trout pays tax on $0 income, Glen's taxable income increases by $200,000, and Michael's d. e. taxable income increases by $200,000 Trout pays tax on S0 income, Glen's taxable income increases by $140,000, and Michael's taxable income increases by $140,000. None of the above. 6. Elk, a C corporation, has $500,000 operating income and $350,000 operating expenses during the year. In addition, Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss. Elk's taxable ncome 1s: a $98,000 b. $118,000 e $150,000. d. $170,000. e. None of the above. 7. Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Naney is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. year, which of the following statements is incorrec? With respect to the current a. Flycatcher pays corporate tax on $200,000 b. Nancy incurs income tax of S6,000 on her dividend income. c. Pasqual incurs income tax of S6,000 on his dividend income. d. Flycatcher can avoid the corporate tax altogether by paying out all $200,000 of net profit as dividends to the shareholders. e. None of the above.Explanation / Answer
Answer
4. Ans is A Increases Norma’s taxable income by $97,000 ($100,000 ordinary business income – $3,000 long-term capital loss)
A proprietorship is not a separate taxable entity. As a proprietor, Norma reports profit or loss from Hyacinth on her individual return.
net ordinary business income =$200000-$100000 = $100000
Norma’s taxable income for 2017 will be increased =Net ordinary business income-capital loss deduction
=$100000-$3000
= $97000
(The $50,000 she withdrew from Hyacinth has no effect on her taxable income.)
5.Ans is E
None of the above.
Trout, a partnership, is not a tax paying entity. Its profit (loss) and separate items flow through to the partners.
The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000income - $220,000 expenses).
The partnership also reports the $100,000 long-term capital gain as aseparately stated item on form 1065. Glen and Michael both receive a Schedule K-1 reporting ordinary business income of $90,000 and separately stated long-term capital gain of $50,000.
Each partner reports ordinary business income of $90,000 and long-term capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership.
6.Ans is C.$150000
Net oprating income 500,000-350,000 = $150000
Add long term capital gain =$20000
Less: maximum deduction for short term capital loss =$20000
Taxable income =$150000
7.
Ans is C.Pasqual incurs income tax of $6,000 on his dividend income.
A preferential tax rate of 0% applies to dividend income of individual taxpayers in the lowest two marginal tax brackets (10% or 15%); thus, Pasqual pays income tax of $0 on his dividend income. A preferential tax rate of 15% or 20% applies to dividend income of individual taxpayers in higher tax rate brackets (i.e., greater than 15%);
thus, Flycatcher pays Corporate tax on $200,000 (option a.)
Nancy incurs income tax of $6,000 on her dividend income (option b.)
Flycatcher can avoid the corporate tax altogether by paying out all $200000 odf net income as dividends to the shareholders. (option d.).
Above all statements are correct. except C
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