Waters Corporation Is an S Corporation with Two Equal Shareholders $\quad$

question 87

Multiple Choice

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:
Sales revenue $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $500,000
Interest income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$ 6,000
Long-term capital gain $\quad$$\quad$$\quad$$\quad$$\quad$ 10,000
Cost of goods sold $\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$ (250,000 )
Salary and wages $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ (75,000 )
Other operating expenses $\quad$$\quad$$\quad$ $\quad$ (55,000 )
Waters distributed $25,000 to each of its shareholders during the year.
-Calculate the S corporation's ordinary (non-separately stated) income and indicate which items must be separately stated.

• A) Ordinary income, $126,000; long-term capital gain is separately stated.
• B) Ordinary income, $120,000; interest income and long-term capital gain are separately stated.
• C) Ordinary income, $136,000; nothing is separately stated.
• D) Ordinary income, $195,000; interest income, long-term capital gain, and salary costs are separately stated.

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Definitions:

Economic Profits

The variance between total financial gains and total charges, taking into account both manifest and implied costs.

Long Run

A time frame during which all production elements and expenses can change, enabling complete adjustment within the industry to any alterations.

Total Revenue

The total amount of money a firm receives from sales of its products or services, before any costs are subtracted.

Profit-Maximizing

The process or goal of a firm to adjust its production and pricing strategies to achieve the highest possible profit.