Question

Which of these shareholder-employees seems to be receiving reasonable compensation from the S corporation?

Answer 1

Answer: Ashlynn is the only shareholder-employee of an S corporation that makes $213,179 a year. She paid herself a salary of $56,321, which is comparable to other employees in her field of work.

Explanation:

An S corporation is required to pay reasonable salaries to the shareholder-employees for the services which are rendered to the organization before any other distributions are being made. This is vital in the protection from penalties and assessments of tax.

Based on the options given, the shareholder-employees that seems to be receiving reasonable compensation from the S corporation is Ashlynn is the only shareholder-employee of an S corporation that makes $213,179 a year. She paid herself a salary of $56,321, which is comparable to other employees in her field of work.