Question

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in the current year. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. With respect to this information, which of the following statements is incorrect?
(a) Juanita must report $120,000 of income from the corporation.
(b) The corporation must pay corporate tax on $200,000 of income.
(c) Carlos must report $120,000 of income from the partnership.
(d)The partnership is not subject to a Federal entity-level income tax.
(e)None of the above.

Answer 1

Answer:

The statement which is incorrect or not true is Option A.

Explanation:

Juanita owns 60% of stock in the corporation, so from the profit of $200,000 in the current year, she should report

= $200,000 × 60%

= $120,000

But the Corporation distributed $45,000 to Juanita. Therefore, she should report only $45,000 for this year not $120,000.

Therefore, the first option is incorrect.