Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the current 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 reports ordinary income of $102,000 and a short-term capital gain of $18,000.Rhea Corporation's taxable income is $200,000 ($550,000 gross income - $380,000 operating expenses). Lucinda's ordinary income is 60% of the corporation's taxable income, or $120,000. However, Lucinda also reports a short-term capital gain of $18,000 (60% of the corporation's $30,000 short-term capital gain). Therefore, Lucinda's total income is $102,000 of ordinary income and $18,000 of short-term capital gain.

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