A Business Has the Following Information: Net Ordinary Income Before $\quad$

question 24

Multiple Choice

A business has the following information: Net ordinary income before the
items below are considered $\quad$$\$ 65,000$
Guaranteed compensation to $Z ( \quad18,000 )$
Rental income $\quad$ 20,000
Rental expenses $\quad$$( 27,000 )$
Net income $\quad \$ 40,000$ If Z performs services for the business, which of the following statements is false?

• A)Z's self-employment income is $65,000 if the business is a proprietorship.
• B)Z's self-employment income is $36,800 if Z is a 40 percent shareholder of an S corporation.
• C)Z's self-employment income is $18,000 if Z is a limited partner who receives 40 percent of the profits and losses.
• D)Z has no self-employment income if Z is a 40 percent shareholder of a C corporation.

---

Definitions:

Financial Capital

Economic resources measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services.

Profit Rate

The ratio of net profits to total revenues of a business, indicating its efficiency at generating profit.

Inventory

The total amount of goods and raw materials held by a business to facilitate production or meet customer demand.

Invest

The action of designating assets, typically capital, in hopes of generating financial gains.