When an Employee/shareholder Receives an Income Allocation from an S

question 10

Multiple Choice

When an employee/shareholder receives an income allocation from an S corporation, what taxes apply to the income allocation?

• A) FICA and self-employment tax.
• B) Self-employment tax only.
• C) FICA tax only.
• D) None of the choices are correct. This income will never be taxed.
• E) None of the choices are correct. This income will, however, be subject to regular income tax.

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Definitions:

Direct Labor Hours

The total time workers spend producing a product or performing a specific service, directly contributing to the output.

Plantwide Overhead Rate

A single overhead absorption rate used throughout an entire factory or plant, applied uniformly to all cost objects irrespective of the department incurring the overhead.

Unit of Product

This term refers to a single complete product that is ready for sale or has passed through one complete stage of production.

Departmental Overhead Rate Method

An accounting method used to allocate overhead costs to specific departments based on relevant activity bases.