Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense: $$\begin{array} { l r }
\text { Sales revenue } & \$ 500,000 \
\text { Interest income } & \mathbf { 6 , 0 0 0 } \
\text { Long-term capital gain } & \mathbf { 1 0 , 0 0 0 } \
\text { Cost of goods sold } & ( 250,000 ) \
\text { Salary and wages } & ( \mathbf { 7 5 , 0 0 0 } ) \
\text { Other operating expenses } & ( 55,000 )
\end{array}$$ Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other sources of income, what is her gross income for the year?

Question

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense: $$\begin{array} { l r } 
\text { Sales revenue } & \$ 500,000 \
\text { Interest income } & \mathbf { 6 , 0 0 0 } \
\text { Long-term capital gain } & \mathbf { 1 0 , 0 0 0 } \
\text { Cost of goods sold } & ( 250,000 ) \
\text { Salary and wages } & ( \mathbf { 7 5 , 0 0 0 } ) \
\text { Other operating expenses } & ( 55,000 )
\end{array}$$ Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other sources of income, what is her gross income for the year?

Quizplus · Accepted Answer

Mia's gross income includes her share of the S corporation's income. The corporation's ordinary income is calculated as sales revenue minus cost of goods sold, salary and wages, and other operating expenses: $500,000 - $250,000 - $75,000 - $55,000 = $120,000. Mia's share is half, so $60,000. Additionally, she includes half of the interest income ($3,000) and half of the long-term capital gain ($5,000), totaling $68,000. Distributions are not included in gross income.

Waters Corporation Is an S Corporation with Two Equal Shareholders