Problem Materials 23 Net Income from Operations. A and B are MDs in the AB partnership. Because of limited liability considerations, their attorney has advised them to incorporate. A typical year for the MDs (who are equal partners) is as follows: Revenues............. Operating expenses........... Charitable contributions........... Owner compensation ....... $400,000 190,000 10,000 200,000 a. Calculate AB's ordinary net income if it is taxed as (1) a partnership or (2) an S corporation. b. Calculate the effect on A's ordinary income if AB is taxed as (1) a partnership; (2) an S corporation; or (3) a C corporation. c. Ignoring limited liability considerations, should the partners incorporate? If so, should they elect S status? d. If A and B desire partnership tax treatment, is there any business entity that would meet their needs? 11-24 Net Income. A calendar year S corporation has the following information for the current taxable year: 500 Sales $180,000 Cost of goods sold........ (70,000) Dividend income ......... 5,000 Net capital loss ... (4,000) Salary to Z........... 12,000 Life insurance for ............ Other operating expenses ......... 40,000 Cash distributions to owners .... 20,000 Assume Z is single and her only other income is $30,000 salary from an unrelated employer. She is a 20% owner with a $10,000 basis in the S stock at the beginning of the year. Calculate the S corporation's net ordinary income and Z's adjusted gross income and ending basis in the S corporation stock. 11 Problem Materials 23 Net Income from Operations. A and B are MDs in the AB partnership. Because of limited liability considerations, their attorney has advised them to incorporate. A typical year for the MDs (who are equal partners) is as follows: Revenues............. Operating expenses........... Charitable contributions........... Owner compensation ....... $400,000 190,000 10,000 200,000 a. Calculate AB's ordinary net income if it is taxed as (1) a partnership or (2) an S corporation. b. Calculate the effect on A's ordinary income if AB is taxed as (1) a partnership; (2) an S corporation; or (3) a C corporation. c. Ignoring limited liability considerations, should the partners incorporate? If so, should they elect S status? d. If A and B desire partnership tax treatment, is there any business entity that would meet their needs? 11-24 Net Income. A calendar year S corporation has the following information for the current taxable year: 500 Sales $180,000 Cost of goods sold........ (70,000) Dividend income ......... 5,000 Net capital loss ... (4,000) Salary to Z........... 12,000 Life insurance for ............ Other operating expenses ......... 40,000 Cash distributions to owners .... 20,000 Assume Z is single and her only other income is $30,000 salary from an unrelated employer. She is a 20% owner with a $10,000 basis in the S stock at the beginning of the year. Calculate the S corporation's net ordinary income and Z's adjusted gross income and ending basis in the S corporation stock. 11