Federal Taxation 2016: Chapter 11: S Corporations

During 2015, Emerald Corporation incurs the following transactions.

Net income from operations $125,000

Long-term capital gain from sale of securities 55,000

Short-term capital loss from sale of securities 35,000

Emerald maintains a valid S election and does not distribute any dividends to its sole shareholder, Dakota. As a result, Dakota must recognize:

a) Ordinary income of $125,000 and long-term capital gain of $20,000.

b) Ordinary income of $125,000, long-term capital gain of $55,000, and $35,000 short-term capital loss.

c) Ordinary income of $125,000, long-term capital gain of $55,000, and $3,000 short-term capital loss.

d) Ordinary income of $125,000.

e) None of the above.

Please explain your answer.