Chapter 02 Solutions

Chapter 02 Solutions - ChapterTwo ProblemSolutions 35. a....

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Chapter Two Problem Solutions 35. a. Otter, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership’s Form 1065 reports net profit of $150,000 ($400,000 income – $250,000 expenses). The partnership also reports the $20,000 tax-exempt interest as a separately stated item on Form 1065. Ellie and Linda each receive a Schedule K-1 reflecting net profit of $75,000 and separately stated tax-exempt interest of $10,000, which each reports on her own return. The withdrawals do not affect taxable income but decrease their basis in the partnership. Example 2 b. Otter, an S corporation, is not a taxpaying entity. Its profit (loss) and separate items flow through to the shareholders. The S corporation’s From 1120S reports net profit of $150,000 ($400,000 income – $250,000 expenses). The S corporation also shows the $20,000 tax-exempt interest as a separately stated item on Form 1120S. Ellie and Linda each receive a Schedule K-1 reporting net profit of $75,000 and separately stated tax- exempt interest of $10,000, which each reports on her own return. The withdrawals do not affect taxable income but decrease their basis in the S corporation. p. 2-3 c. Otter, a C corporation, is a taxpaying entity. Otter’s Form 1120 reports taxable income of $150,000 ($400,000 income – $250,000 expenses). The $20,000 of tax-exempt interest is excluded from Otter’s gross income. Ellie and Linda report dividend income of $50,000 each. The dividend
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This note was uploaded on 03/25/2010 for the course ACCT 476 taught by Professor Mertens during the Spring '09 term at Binghamton University.

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Chapter 02 Solutions - ChapterTwo ProblemSolutions 35. a....

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