Neal Corporation Was Initially Formed as a C Corporation with a Calendar

question 88

Essay

Neal Corporation was initially formed as a C corporation with a calendar year-end.Neal elected S corporation status,effective January 1,2019.On December 31,2018,Neal Corp.reported earnings and profits of $150,000.Beginning in 2019,Neal Corp.reported the following information.Does Neal Corp.'s S election terminate due to excess net passive income? If so,what is the effective date of the termination?

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Definitions:

Uncertainty

The degree to which the outcome of an event, choice, or investment is unknown.

Constant Growth DDM

The Dividend Discount Model assumes dividends grow at a constant rate indefinitely, used to estimate the value of a company's stock.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends.

Common Stock

Equities, or equity securities, issued as ownership shares in a publicly held corporation. Shareholders have voting rights and may receive dividends based on their proportionate ownership.