Question

CSU, Inc., is a calendar year S corporation. CSU’s Form 1120S shows nonseparately stated ordinary income of $120,000 for the year. Taewon owns 30% of the CSU stock throughout the year. The following information is obtained from the corporate records.

Tax-exempt interest income	$ 4,500
Salary paid to Taewon	(78,000)
Charitable contributions	(9,000)
Dividends received from a non-U.S. corporation	7,500
Short-term capital loss	(9,000)
Depreciation recapture income	16,500
Refund of prior state income taxes	7,500
Cost of goods sold	($108,000)
Long-term capital loss	(10,500)
Administrative expenses	(27,000)
Long-term capital gain	21,000
Selling expenses	(16,500)
Taewon’s beginning stock basis	48,000
Taewon’s additional stock purchases	13,500
Beginning AAA	46,500
Taewon’s loan to corporation	30,000

1. Compute CSU’s taxable income or loss, showing the calculation (on a “white paper” schedule not on IRS forms). Taxable income should equal Form 1120S, Schedule K, line 18, which should be the same as Form 1120S, Schedule M-1, line 8. Assume the I.R.C. section 1374 and 1375 taxes do not apply. HINT: the refund of prior state income taxes is taxable other income. TI check figure $127,500.

Answer 1

Ordinary Income 120000

Add: Seprately Stated item ;

Dividend Received 7500

Tax excerpt interest 4500

Recovery of State Taxes   7500

Long Term Capital Gain 21000 40500

...........

160500

Less: seprately Stated Item;

Charitable contribution 9000

LTCL 10500

STCL 9000 (28500)

__________________

132000

B) Begining Stock Basis 48000

Add: Ordinary Income 48000

   Tax Excempt intrest( 4500*30%) 1350

   Divident Received    2250

   Recovery of state taxes 2250

​​​​​ LTCG 6300

   Additional investment 13500 73650

   ___________

121650

Less; Charitable contributions ( 9000*30%) 2700

   LTCL 3150

STCL 2700 (8550)

   _______________

Ending stock basis 113100

C) Beginning AAA 46500

Add: ordinary income 120000

   Dividend received 7500

   Recoveye of state tax 7500

   LTCG 21000 156000

   ______________

   202500

Less: charitable contribution 9000

   LTCL 10500

   STCL 9000 (28500)

   ______________

Ending AAA 174000