Lucinda Is a 60% Shareholder in Rhea Corporation, a Calendar

question 82

Multiple Choice

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?

• A)Rhea Corporation will pay tax on taxable income of $200,000.
• B)Lucinda reports ordinary income of $50,000.
• C)Lucinda reports ordinary income of $120,000.
• D)Lucinda reports ordinary income of $102,000 and a short-term capital gain of $18,000.
• E)None of the above.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Useful Life

The estimated duration of time an asset is expected to remain functional and economically feasible for its intended use.

Straight-Line Depreciation

A strategy for spreading out the expenditure of a physical asset over the duration of its useful life in uniform annual payments.

Residual Value

The estimated value that an asset will realize upon its sale at the end of its useful life, important in calculating depreciation.