Question

Question 2 (3 points) Mohamed owns 25% of Red Corp, an S-corporation. In 2019, Red Corp earned $100,000 of taxable income and distributed a total of $60,000 to its shareholders. Mohamed also owns 30% of Blue Corp. a C-corporation. In 2019, Blue Corp earned taxable income of $100,000 and paid a total of $50,000 in dividends to its shareholders. How much income must Mohamed include in his gross income as a result of being a shareholder in these two corporations? a) $30,000 b) $45,000 c) $40,000 d) $50,000 Oe) $55,000 by

Answer 1

Step - (1) - Information Given -

Mohamed owns 25% of Red Corp, an S-corporation. In 2019, Red Corp earned $100000 of taxable income and distributed a total of $60000 to its shareholders.

Mohamed also owns 30% of Blue Corp. a C-corporation. In 2019, Blue Corp earned taxable income of $100000 and paid a total of $50000 in dividends to its shareholders.

.

Step - (2) - Calculation of amount to be included in the gross income of Mohamed -

		Explanation	Amount
I.	Distribution of income by Red Corp.	$60000 * 25%	$15000
II.	Distribution of dividends by Blue Corp.	$50000 * 30%	$15000
Amount to be included in the gross income of Mohamed		I + II	$30000

Hence, Option - (a) is Correct.