RGD Corporation Was a C Corporation from Its Inception in 2010

question 62

Essay

RGD Corporation was a C corporation from its inception in 2010 through 2013. However, it elected S corporation status effective January 1, 2014. RGD had $50,000 of earnings and profits at the end of 2013. RGD reported the following information for its 2014 tax year. $$\begin{array} { | l | r | } \hline \text { Description } & \text { Amount } \\\hline \text { Consulting revenue } & \mathbf { \$ 9 9 , 0 0 0 } \\\hline \text { Salary to owners } & ( 40,000 ) \\\hline \text { Employee wages } & ( 30,000 ) \\\hline \text { Depreciation expense } & ( 5,000 ) \\\hline \text { Municipal bond interest } & 6,000 \\\hline \text { Interest income } & 42,000 \\\hline \text { Dividend income } & \underline { 25,000 } \\\hline \text { Overall net income } & \mathbf { \$ 9 7 , 0 0 0 } \\\hline\end{array}$$ What amount of excess net passive income tax is RGD liable for in 2014? (Round your answer for excess net passive income to the nearest thousand).

---

Definitions:

Operating Activities

Operating activities involve the primary revenue-generating activities of a business, such as sales and delivery of goods/services, and are reflected in the cash flow statement.

Credit Sales

Transactions in which goods or services are provided to a customer with the agreement that payment will be made at a future date.

Collections

The process of pursuing payments of debts owed by individuals or businesses, often managed by accounts receivable departments or collection agencies.

Noncash Financing

Activities that increase long-term liabilities or equity but do not involve the immediate receipt or payment of cash, such as issuing stock or converting debt to equity.