Question

In: Accounting

According to the following 2017 data for Floyd Company, a closely held corporation, what its taxable...

According to the following 2017 data for Floyd Company, a closely held corporation, what its taxable income?

Net passive loss: $5,000

Net active income: $3,000

Net portfolio income: $4,000

a) $2,000

b) $3,000

c) $4,000

d) $7,000

Solutions

Expert Solution

Correct Answer (B) $3000.

Explanation

Calculation of Taxable Income

Net Portfolio Income

$                                     4,000.00

Less: Setoff of Passive Loss upto maximum portfolio income

$                                   (4,000.00)

Add: Passive Income

$                                     3,000.00

Net Taxable Income

$                                     3,000.00

Notes

  1. Portfolio income is considered as a passive income.
  2. Passive loss cannot be setoff with any active income that is why passive loss of $ 1000 is still left unadjusted.
  3. Passive loss can only be setoff with another passive income upto maximum amount of passive income. In above case passive income $ 4000 is deducted to adjust passive loss.

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