Assume the entity is a regular C corp and distributions are dividends. What is the corpoarations taxable income and tax liability
Rachel and Steve formed RS Entity on Decem The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. on December 28 of last year, the entity used the $2 million cash (contributions and loan) to purchase assets as indicated inthe following balance sheet (as of 12/28): Cash 100,000 Inventory 1,770,000 Investment in tax-exempt bonds 50,000 Investment in corporate stock (less than 20%-owned) 80,000 Total Assets Liability (Bank loan) 400,000 Equity 1.600.000 Total Liabilities and Equity partnership, each partner's beginning capital account is Sa00,000. The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: Sales $3,000,000 Purchase of additional inventory 2,100,000 Ending inventory at December 31 of current year 1,650,000 Gain on sale of corporate stock 20,000 on December 31 of the current year Dividends received on stock prior to its sale 4,000 Tax-exempt interest received 500,000 Operating expenses Interest paid on loan (no principal paid)" 30,000 Distributions on December 31 ofthe current year: Rachel and Steve formed RS Entity on Decem The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. on December 28 of last year, the entity used the $2 million cash (contributions and loan) to purchase assets as indicated inthe following balance sheet (as of 12/28): Cash 100,000 Inventory 1,770,000 Investment in tax-exempt bonds 50,000 Investment in corporate stock (less than 20%-owned) 80,000 Total Assets Liability (Bank loan) 400,000 Equity 1.600.000 Total Liabilities and Equity partnership, each partner's beginning capital account is Sa00,000. The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: Sales $3,000,000 Purchase of additional inventory 2,100,000 Ending inventory at December 31 of current year 1,650,000 Gain on sale of corporate stock 20,000 on December 31 of the current year Dividends received on stock prior to its sale 4,000 Tax-exempt interest received 500,000 Operating expenses Interest paid on loan (no principal paid)" 30,000 Distributions on December 31 ofthe current year
