Alabaster Company is a Subchapter S corporation.It properly reported net income of $250,000 for financial statement purposes.It had net capital gains of $60,000 and charitable contributions of $20,000.What is the ordinary business income (loss)of Alabaster Company that will be reported to its shareholders on Schedule K-1?

Question

Quizplus · Accepted Answer

As a Subchapter S corporation, Alabaster Company's net income is passed through to the shareholders and reported on Schedule K-1.

The first step is to adjust the net income reported on the financial statements for items that are not included in ordinary business income. In this case, we need to subtract the net capital gains and add back the charitable contributions.

Adjusted net income = Net income - Net capital gains + Charitable contributions 
Adjusted net income = $250,000 - $60,000 + $20,000 
Adjusted net income = $210,000

Therefore, the ordinary business income that will be reported to the shareholders on Schedule K-1 is $210,000.

Alabaster Company Is a Subchapter S Corporation