Khaki Company is a Subchapter S corporation.It properly reported net income of $100,000 for financial statement purposes.It had charitable contributions of $5,000 and dividend income of $10,000 from a large domestic publicly traded company.What is the ordinary business income of Khaki Company that will be reported to its shareholders on Schedule K-1?

Question

Quizplus · Accepted Answer

For an S corporation, both charitable contributions and dividend income are separately stated items and not included in the calculation of ordinary business income. Therefore, the ordinary business income reported to shareholders on Schedule K-1 would be the net income of $100,000 without any adjustments for the charitable contributions or the dividend income, making it $100,000. However, since the question seems to imply asking for the adjusted ordinary business income considering typical adjustments, subtracting the charitable contributions ($5,000) from the net income would result in $95,000, which aligns with the usual treatment of these items for tax purposes. This suggests there might be a misunderstanding in the explanation process, but based on standard tax treatment, ordinary income would typically be reported before these deductions and separately stated.

Khaki Company Is a Subchapter S Corporation