Jennifer Owns 60% of the Stock in Heath Corporation

question 11

Multiple Choice

Jennifer owns 60% of the stock in Heath Corporation. During the current year, Heath Corporation has taxable income of $80,000 and pays dividends of $30,000. Which of the following statements about Jennifer's income from Heath Corporation is/are correct?
I.If Heath Corporation is an S corporation, Jennifer must recognize $48,000 of income.
II.If Heath Corporation is a corporation, Jennifer must recognize $18,000 of income.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Net Present Value

A financial metric that calculates the value of a series of future cash flows in today's dollars, taking into account the time value of money.

Incremental Taxable Income

The additional amount of income that is subject to taxes, usually resulting from an increase in earnings or gains.

Tax Rate

The percentage at which an individual or corporation is taxed by the government on income or property.

After-Tax Discount Rate

The after-tax discount rate is the rate used to discount future cash flows back to their present value, accounting for taxes, and is crucial in evaluating the after-tax net present value of future cash flows.