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:

Zero Marginal Cost

The situation where producing an additional unit of a good or service does not increase the total cost of production.

Fixed Cost

Expenses that do not change with the level of output produced, such as rent, salaries, and insurance premiums.

Patent

A legal grant by a government to an inventor, giving the right to exclude others from making, using, or selling an invention for a certain number of years.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity volume.