Flycatcher Corporation,a C Corporation,has Two Equal Individual Shareholders,Nancy and Pasqual

question 33

Multiple Choice

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

• A)Flycatcher cannot avoid the corporate tax altogether by distributing all $100,000 of net profit as dividends to the shareholders.
• B)Nancy incurs income tax of $1,500 on her dividend income.
• C)Pasqual incurs income tax of $1,500 on his dividend income.
• D)Flycatcher pays corporate tax of $22,250.
• E)None of the above.

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Definitions:

Disgorgement of Profits

A legal remedy requiring a party to surrender profits gained through wrongful conduct to prevent unjust enrichment.

Fraudulent Sale

A transaction in which deception is used to gain a dishonest advantage, typically involving the misrepresentation of the value or condition of an item or service.

Executive Branch

The branch of government responsible for implementing and enforcing the laws passed by the legislative body, typically headed by the president or prime minister.

SEC

The U.S. Securities and Exchange Commission, responsible for regulating the stock market and protecting investors by ensuring fairness and transparency.