Question

Che Required information Problem 5-41 (LO 5-1) [The following information applies to the questions displayed below) XYZ declared a $1 per share dividend on August 15. The date of record for the dividend was September 1 (the stock began selling ex-dividend on September 2). The dividend was paid on September 10. Ellis is a cash-method taxpayer. Determine the economic income and the amount he must include in gross income under the following independent circumstances. Problem 5-41 Part-a a. Ellis bought 225 shares of XYZ stock on August 1 for $46 per share. Ellis received a $225 dividend on September 10. Ellis still owns the shares at year-end. Economic Income Amount included in Gross Income < Prev 1 2 3 of 16 III Next >

Answer 1

SOLUTION:

Here, Ellis  is the tax payer . She is one of the shareholder of XYZ Company.

She is a cash method tax payer.There are two method of tax payment mainly;cash method and accrual method.As per the cash method of tax payment ,income is reported on the year in which it is received but not the year which it is earned.

So, the economic income for Ellis:

In the above mentioned context Ellis has no economic income yet.She has only received divident worth $ 225 from shares.Dividend from shares are included under the head of investment income.Hence there is no economic income for Ellis.

The amount included in the Gross Income:

• The amount included in the gross income of Ellis is $225
• Ellis received $ 225 as divident on her shares as on september 10.
• Since Ellis is a cash method tax payer her all incomes are included in the Gross income.