Solution:
Revenues are the revenues generated by the sale of goods or the delivery of services in return. Investment of the sum as capital in the defense sector will also produce profits. It is used to serve the everyday business of the organization.
Computation of "Cougar Incorporation" book income or loss:
Particular Working note number Amount
Ordinary income of "S Corporation" $80,000
Add: separately stated income 1 $27,000
Less: separately stated loss 2 ($19,000)
Book income $88,000
Working notes:
1.
Particular Amount
Tax exempt interest income $3,000
Dividend received from a non-U.S. corporation $5,000
Refund of prior state income tax $5,000
Long term capital gain $14,000
Total $27,000
2.
Particular Amount
Charitable contributions $6,000
Short term capital loss $6,000
Long term capital loss $7,000
Total $19,000
b & c.) Computation of Cougar Incorporation's and ?Johnny's AAA amount and stock basis:
Particular Cougar Incorporation AAA amount Johnny stock basis (40%)
Beginning AAA $31,000 $32,000
Book income of cougar $88,000 $35,200
Additional investment $9,000
End balance $1, 19,000 $76,200
