Salem Inc Is an Electing S Corporation with Current Year Operating

question 78

Multiple Choice

Salem Inc. is an electing S corporation with current year operating income of $300,000. The $300,000 does not include the amount it realized on the sale of a building for $330,000. The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale. How should Salem Inc. report these results to its shareholders?

• A)Operating income of $320,000 and Section 1231 gain of $80,000.
• B)Operating income of $400,000.
• C)Operating income of $304,000 and Section 1231 gain of $96,000.
• D)Operating income of $380,000 and unrecaptured Section 1250 gain of $20,000.
• E)Operating income of $300,000 and Section 1231 gain of $80,000 and unrecaptured Section 1250 gain of $20,000.

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Definitions:

Future Uncertainty

The inability to predict with complete confidence what is going to happen in the future, often a consideration in economic, financial, and strategic planning.

Keynesian Model

An economic theory proposing that active government intervention is necessary to manage economic cycles and stabilize output by adjusting demand through fiscal and monetary policies.

Money

An officially issued legal tender generally accepted in exchange for goods and services and repayment of debts.

Checking Account Balances

The amount of money currently available in one’s checking account, reflecting all deposits and withdrawals made.