During the current year, Trane invests $35,000 in each of two separate corporations. Each investment gives him a 20% ownership interest. Brazil Corporation is a regular corporation that has taxable income of $200,000 and pays dividends totaling $50,000. China Corporation is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends. As a result of these two investments, Trane
I.Has $40,000 of taxable income from Brazil Corporation.
II.Has $20,000 of taxable income from China Corporation.

Question

During the current year, Trane invests $35,000 in each of two separate corporations. Each investment gives him a 20% ownership interest. Brazil Corporation is a regular corporation that has taxable income of $200,000 and pays dividends totaling $50,000. China Corporation is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends. As a result of these two investments, Trane
I.Has $40,000 of taxable income from Brazil Corporation.
II.Has $20,000 of taxable income from China Corporation.
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Quizplus · Accepted Answer

Trane's taxable income from China Corporation, an S corporation, is based on his share of the corporation's taxable income, which is 20% of $100,000, equaling $20,000. For Brazil Corporation, a regular corporation, Trane's taxable income is not directly affected by the corporation's taxable income or dividends, as he is not taxed on the corporation's income but rather on dividends received, which are not specified as his income in the problem.

During the Current Year, Trane Invests $35,000 in Each of Two