Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition, Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements: Which of the following answers is correct?

Question

Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition, Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements:  Which of the following answers is correct?

Quizplus · Accepted Answer

Statement 1 is correct, as Green Corporation has income from active business operations of $50,000 and income received from dividends of $40,000, resulting in a total income of $90,000. 
Statement 2 is also correct, as Green Corporation incurred a passive loss of $70,000 from a previous investment. This loss can be used to offset the active and dividend income, resulting in a taxable income of $20,000 ($90,000 - $70,000).

Green Corporation Earns Active Income of $50,000 and Receives $40,000