Question

Problem 17-29 (LO. 1) In the current year, Riflebird Company had operating income of $220,000, operating expenses of $175,000, and a long-term capital loss of $10,000. How do Riflebird Company and Roger, the sole owner of Riflebird, report this information on their respective Federal income tax returns for the current year under the following assumptions? If an amount is zero, enter "0". a. Riflebird Company is a proprietorship (Roger did not make any withdrawals from the business). Roger reports & net operating profit and $ long-term capital loss on his tax return. Roger would claim a $ deduction for qualified business income. Riflebird Company, as a proprietorship, files Federal income tax return for the year. b. Riflebird Company is a C corporation (no dividends were paid during the year). long-term capital loss on his tax return. Riflebird Company will report taxable Roger reports & income of $ net operating profit and $ on its

Answer 1

Solution:

a) If Riflebird company is a propiretorship:

Income,losses , gains and deductions of a properitorship are reported in the individual tax return of the sole proiretor(Form 1040).Consequently , Roger reporsts the $45,000 net operating profit($220,000 -$175,000 operating expenses)and $10,000 long trem capital loss on his tax return . The LTCL will be subject to the capital loss limitation applicable to individual taxpayer.Riflebird company as a propiretorship , files no entity Fedral income tax return for the year.

b) If Riflebird company is C corporation:

Rifl;ebird company is a separate taxable entity that files a corporate income tax return.

Toger company report taxable income of $45,000($220,000 operating income -$175,000 operating expenses) on its Form 1120.A corpoartion cannot currenty deduct a net capital loss . Instead, the LTCL is subject to the corporate capital loss carryover rules(carried back three years and forward five years as STCL).Riflebird company's taxable income ha no effect on the shareholders until such time a dividend is paid. When dividends are paid, sharholders are required to repordt dividends income o their tax returns. Therefore, Roger does not report Riflebird's net profit or long term capital loss on his individual return