(TCO 2) Luann is the owner of Pet Grooming Service (a C corporation). During the year, the company
had gross income of $150,000 and operating expenses of $97,500, including Luann’s salary of $46,500.
In July, Pet sold a capital asset that had been held by the business for two years for a $7,500 loss. During
the year, Pet paid Luann a dividend of $10,000. What is Pet’s taxable income for the year?
None of the above.
Pet reports the income and expenses of the business on Form 1120, resulting in net profit (ordinary
income) of $52,500 ($150,000 – $97,500). Pet also reports a $7,500 LTCL on Schedule D of its Form
1120, but is not allowed to deduct any of the capital loss this year. The LTCL may be carried back three
years or forward five years to be offset against capital gains. The corporation cannot deduct the dividend
paid to Luann.
2 of 2
(TCO 2) Grocer Services Corporation (a calendar year taxpayer), a wholesale distributor of food, made
the following donations to qualified charitable organizations during the year:
Fair Market Value
Food (held as inventory) donated to the OhioChildren’s Shelter
Passenger van to Ohio Children’s Shelter, to be used to transport children to school