Lemon Corporation incurs the following transactions. $\begin{array}{lc}
\text { Net income from operations } & \$ 110,000 \
\text { Interest income from saving account } & 5,000 \
\text { Long-term capital gain from sale of securities } & 9,000 \
\text { Short-term capital loss from sale of securities } & 4,000
\end{array}$ Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Patty. As a result, which of the following must Patty recognize? Ignore the 20% QBI deduction.
A) Ordinary income of $115,000 and long-term capital gain of $5,000.
B) Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss.
C) Ordinary income of $120,000.
D) Capital gain of $120,000.

Question

Quizplus · Accepted Answer

S corporations pass through their income, deductions, losses, and credits to their shareholders for federal tax purposes. Patty must recognize the net income from operations ($110,000), interest income ($5,000), long-term capital gain ($9,000), and short-term capital loss ($4,000) as these items are passed through from the S corporation.

Lemon Corporation Incurs the Following Transactions Lemon Maintains a Valid S Election and Does Not Distribute