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

The total income of Waters is $147,000 ($65,000 + $27,000 + $55,000). The total expense is $27,000 ($10,000 + $17,000). Therefore, the ordinary income is $120,000 ($147,000 - $27,000). Interest income and long-term capital gain must be separately stated, but salary costs are not separately stated. The distribution of $25,000 to each shareholder is not deductible from the S corporation's income.

Waters Corporation Is an S Corporation with Two Equal Shareholders