question b-1

Problem 13-48 (LO.5) An entity reports the following income for the current year. Operations Tax-exempt interest income $92,000 19,000 60,000 Long-term capital gain The entity holds earnings and profits (AAA for an s corporation) of $900,000 at the beginning of the year. A distribution of $200,000 is made to the owners. a. Determine the income for each entity type below: (1) If the entity is a C corporation then the taxable income is sl 1 52,000 (2) If the entity is an S-corporation then the ordinary income of the corporation is s 9 2,000 Feedback Check My Work Under the conduit concept, the entity is viewed as merely an extension of the owners. Under the entity concept, the entity is regarded as being separate and distinct from its owners. b. Determine the effect of the distribution on the shareholders for the entity. Assume shareholder have sufficient stock basis. of (1) C corporation: Because the corporation has ending E&P of $ 871,000 x, the shareholders have dividend income $200,000 (2) S corporation: Shareholders have a return of capital of $200,000