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.

---

Definitions:

Criminal Guilt

The determination that an individual has committed a crime as proven in a court of law, following a legal process.

Civil Trial

A legal proceeding in which disputes between parties are resolved by a judge or a jury, not involving criminal charges.

Entrapment

A practice whereby a law enforcement agent induces a person to commit a criminal offense that the person would have otherwise been unlikely to commit.

Controlled Substance

A drug or chemical whose manufacture, possession, or use is regulated by a government due to potential for abuse or addiction.