Waters Corporation Is an S Corporation with Two Equal Shareholders

question 65

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: $$\begin{array} { l r } \text { Sales revenue } & \$ 500,000 \\\text { Interest income } & \mathbf { 6 , 0 0 0 } \\\text { Long-term capital gain } & \mathbf { 1 0 , 0 0 0 } \\\text { Cost of goods sold } & ( \mathbf { 2 5 0 , 0 0 0 } ) \\\text { Salary and wages } & ( \mathbf { 7 5 , 0 0 0 } ) \\\text { Other operating expenses } & ( 55,000 ) \end{array}$$ 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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