LO2 Manuel and Fernando own and operate an electronics store, Electronica, as an S corporation. Manuel owns 70%, and Fernando owns 30%. For the current year, the store reports the following:

a. How must Electronica report its results to Manuel and Fernando for tax purposes?

b. In addition to the income and deductions from Electronica, Manuel has interest and dividend income of $3,500, long-term capital gains of $1,500, and other itemized deductions of $14,500. He is married and has two children. What is his taxable income and his income tax liability?

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Sales revenue Long-term capital gains Business expenses Charitable contributions Non-deductible expenses Short-term capital losses Operating income $1,000,000 8,000 (840,000) (9,000) (4,000) (15,000) $ 140,000