LaTonia Williamson

Chapter 17

24. Emu Company, which was formed in 2010, had operating income of $200,000
and operating expenses of 120,000 in 2010. In addition, Emu had a long term capital
loss of 10,000. How does Andrew, the owner of Emu Company, report this
information on his individual tax return under the following assumptions?
a) Emu Company is an S Corporation and pays no dividend.
b) Emu Company is C Corporation and pays no dividends during the year.

a. Revenues, expenses, gains, and losses of an S corporation flow through to the

shareholders to be reported on their returns. Consequently, Andrew
will not report any of these items on his individual return.

b. Shareholders are required to report income from a corporation only to the

extent of dividends received. Therefore, Andrew does not report the
net profit or capital loss on his individual return.

25.

Otter Enterprises
Ellie Equal owners
Linda Equal owners
$400,
Gross Income 000
Operating
Expenses $250,000
Operating
Income $ 200,000
Interest income $20,000
Distributions $50,000 Ellie
Distributions $ 50,000 Linda

Taxable Income
If: Form Ellie Linda Otter Enterprises
Partnership 1065 $ 50,000 $ 50,000 None, passed along
S Corporation 1120S $ 50,000 $ 50,000 None, passed along
C Corporation 1120 0 0 $ 260,000

Interest Income
Otter
If: Ellie Linda
Enterprises
Partnershi $ $10,00 None, passed
p 10,000 0 along
S
$ $
Corporati
10,000 10,000
on
C
$20,00
Corporati Ordinary Income
0
on
29.
Loon Corporation
Compute Taxable Income

Option Optio
A nB
Operating
Income $400,000 400,000
Operating
Expenses - $355,000 -355,000
Muni Bond
Interest $25,000 25,000
$60,0 100,0
Capital Gain 00 00
95,00 95,00
Capital Loss 0 0
Net Capital
Gain/Loss 0 5000
taxable Income 70,000 75,000

With net capital loss, cannot claim reduction in operating income

ever
can claim a carry back against capital gains in three previous
years or
carry forward against five future years.

38.

income from operations 300,000

plus dividends 150,000
=gross income 450,000
less expenses (375,000)
=Net income 75,000
less 70% dividends 150,000 x 70%= (105,000)
received deduction
= net operating loss (NOL) (30,000)
of

b) Ruby Corp. may carry the NOL back 2 years prior to the year the NOL is generated. If the NOL is
not used in the prior 2 years the remaining NOL can be carried forward for up to 20 years after the
tax year in which the NOL was generated.

Also, Ruby Corp. may instead make an election to waive the 2 year carryback period and use only
the 20 year carryforward period. If Ruby wants to make this election, a statement must be attached
to the original return filed by the due date (including extensions) for the NOL year.