Question

During 2017, Thrasher (a calendar year, accrual basis S corporation) has the following transactions:

Sales                                                                                                    $1,500,000

Cost of goods sold                                                                                900,000

Long-term capital gain 11,000

Short-term capital gain 5,000

Salaries                                                                                                210,000

Qualified dividends from stock investments 30,000

Rent expense 170,000

Advertising expense                                                                              20,000

Interest expense on business loan 15,000

§ 1231 gain 25,000

Organizational expenditures 3,000

Charitable contributions                                                                         5,000

Bad debt (trade account receivable deemed to be uncollectible) 10,000

Cash dividend distributed to shareholders 120,000

Determine Thrasher’s taxable income for 2017.

Answer 1

Thrasher’s taxable income for 2017
Income from Business	Amounts	Amounts
Sales	15,00,000
Less: Cost of goods sold	(90,000.00)
Less: Rent Expense	(1,70,000.00)
Less: Advertising Expense	(20,000.00)
Less: Interest Expense on Business Loan	(15,000.00)
Less: Salaries	(2,10,000.00)
Less: Organisational Expense	(3,000.00)
Less: Bad Debts	(10,000.00)
	Income from Business (a)	9,82,000.00
Incom from Capital Gain
Short Term Capital Gain	11,000
	Incom from Capital Gain(b)	11,000.00
Income from Other Sources
§ 1231 gain	25,000
	Income from Other Sources(c)	25,000.00
	Taxable Income= a+b+c	10,18,000.00
Notes:
1. Dividend Income is exempt from Taxation.
2. Bad Debt is assumed to be written off therefore allowed as deduction under Business income.
3. Dividend Distribution tax is paid on the Dividend distributed to Shareholders.
4. § 1231 gain- this being not clear so assumed to be income from other sources.
5. Charitable contribution is not an allowable deduction under business income.
6. Long term Capital gain is exempt under section 10(38) assuming this is on sale of shares.