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: Waters distributed $25,000 to each of its shareholders during the year. Calculate the S corporation's ordinary (non-separately stated) income and indicate which items must be separately stated.

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:  Waters distributed $25,000 to each of its shareholders during the year. Calculate the S corporation's ordinary (non-separately stated) income and indicate which items must be separately stated.

Quizplus · Accepted Answer

To calculate the S corporation's ordinary income, we need to add up the following items:
- Sales Revenue: $100,000
- Interest Income: $5,000 (separately stated)
- Cost of Goods Sold: $35,000
- Depreciation: $20,000
- Salaries and Wages: $50,000
- Rent Expense: $5,000
- Long-term Capital Gain: $15,000 (separately stated)

So the total ordinary income is $120,000. The interest income and long-term capital gain must be separately stated and reported to the shareholders on Schedule K-1. Therefore, option B is the correct answer.

Waters Corporation Is an S Corporation with Two Equal Shareholders