Juanita Owns 45% of the Stock in a C Corporation

question 35

Multiple Choice

Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2010.Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year.The corporation distributed $20,000 to Juanita,and the partnership distributed $20,000 to Carlos.Which of the following statements relating to 2010 is incorrect?

• A)Juanita must report $20,000 of income from the corporation.
• B)The corporation must pay corporate tax on $120,000 of income.
• C)Carlos must report $20,000 of income from the partnership.
• D)The partnership is not subject to a Federal entity-level income tax.
• E)None of the above.

Comprehend the use of the degree of operating leverage and how it affects net operating income in response to sales changes.

Evaluate the effect of changes in marketing strategies, including advertising budget adjustments and sales commissions, on net operating income.

Determine the margin of safety in both dollar terms and units.

Appreciate the impact of incorporating new components or features on product costs and monthly sales.

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Definitions:

Macro-aging Schedule

A method used in financial analysis that categorizes accounts receivable or other financial assets based on the period of time they have been outstanding.

Current Ratio

A financial metric used to evaluate a company's ability to pay off its short-term liabilities with its short-term assets.

Current Liabilities

Short-term financial obligations that a company owes and is expected to pay within one year or within the normal operating cycle.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, whichever is longer.