Ian Contributes $9,000 in Exchange for a 30 Percent Interest

question 76

Multiple Choice

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation.For 2018, the corporation reported a total loss of $35,000 and made no cash distributions.For 2019, the corporation reported net income of $45,000 and made a cash distribution to the shareholders.Ian received $5,000 of this cash distribution in 2019.Ian is in the 24% marginal tax bracket and 15% dividend rate in both 2018 and 2019.How much income tax did Ian save for 2018 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2019?

• A)zero tax savings in 2018 and $750 tax in 2019
• B)zero tax savings in 2018 and $3,360 tax in 2019
• C)$2,520 tax savings in 2018 and $3,360 tax in 2019
• D)$2,520 tax savings in 2018 and $2,550 tax in 2019
• E)$2,940 tax savings in 2018 and $3,780 tax in 2019

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Definitions:

Process Cost System

A cost accounting system used when a company manufactures a large volume of similar products.

Manufacturing Processes

Manufacturing processes are the methods and techniques used to convert raw materials into finished goods.

Connected Manufacturing

The integration of factory equipment, workflows, and systems through the Internet of Things (IoT) to enhance manufacturing processes.

Production Department

Is the division within a manufacturing process that is directly involved in the transformation of raw materials into finished products.