Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?
A)Rhea Corporation will pay tax on taxable income of $200,000.
B)Lucinda reports ordinary income of $50,000.
C)Lucinda reports ordinary income of $120,000.
D)Lucinda reports ordinary income of $102,000 and a short-term capital gain of $18,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Lucinda's share of the ordinary income is 60% of ($550,000 - $380,000) = $102,000, and her share of the short-term capital gain is 60% of $30,000 = $18,000.

Lucinda Is a 60% Shareholder in Rhea Corporation, a Calendar