Arthur is the sole shareholder of Purple, Inc. Purple's taxable income before the payment of Arthur's salary is $300,000. Based on this information, Arthur has the corporation pay him a salary of $200,000 and a bonus of $100,000. A reasonable salary and bonus would be $175,000. Which of the following is correct?
A)The taxable income of Purple, Inc., is $0 ($300,000 - $300,000 salary and bonus).
B)The taxable income of Purple, Inc., is $100,000 ($300,000 - $200,000).
C)Arthur has salary and bonus income of $300,000.
D)Arthur has salary and bonus income of $175,000 and dividend income of $125,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Arthur's reasonable salary and bonus is $175,000. The excess $125,000 ($300,000 - $175,000) is considered a dividend.

Arthur Is the Sole Shareholder of Purple, Inc