Luis Is the Sole Shareholder of a Regular C Corporation

question 52

Multiple Choice

Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship. In the current year, both businesses make a profit of $80,000 and each owner withdraws $50,000 from his business. With respect to this information, which of the following statements is incorrect?

• A) Eduardo must report $80,000 of income on his return.
• B) Luis must report $80,000 of income on his return.
• C) Eduardo's proprietorship is not required to pay income tax on $80,000.
• D) Luis's corporation must pay income tax on $80,000.
• E) None of the above.

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Definitions:

Overhead Rates

The ratio used to allocate indirect costs to products or services, typically based on a measure such as labor hours or machine hours.

Personnel Costs

Expenses related to the compensation and benefits of employees, including wages, salaries, bonuses, and fringe benefits.

Volume-based Cost Driver

A factor that causes the cost of an activity or resource to increase, directly related to the volume of production or service delivery.

Indirect Manufacturing Costs

Expenses related to the production process that cannot be directly attributed to specific units of product, such as utilities, maintenance, and factory supervision.