Julio and Milania are owners of Falcons Corporation, an S corporation. Each owns 50 percent of Falcons Corporation. In year 1, Julio and Milania each received distributions of $15,000 from Falcons Corporation.

a. What amount of ordinary income and separately stated items are allocated to them for year 1 based on the information above? Assume that Falcons Corporation has $200,000 of qualified property (unadjusted basis).

Falcons Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2 Year 1 Year 2 Sales revenue $ 300,000 $ 430,000 Cost of goods sold (40,000) (60,000) Salary to owners Julio and Milania (40,000) (89,966)| Employee wages (25,000) (50,000) Depreciation expense (20,000) (46,666)| Section 179 expense (30,000) (50,000) Interest income (related to business income) 12,000 22,500 Municipal bond income 1,560 4,000 Government fines 2 (2,000) Overall net income $ 158,500 $ 174,500 Distributions $ 30,000 $ 50,600 Ordinary Income $ 40000 (S 200003|$ 20,0006 Section 179 expense & 30008 15,000 & Municipal bond income o 1,500 @ 750 @ Distributions &@| 30008 15,000 & 15,000 & Qualified business income @ s 20000 (s 10,000