Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2016. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses?
A)$0 income from the S corporation and $30,000 income from the C corporation.
B)$30,000 income from the S corporation and $30,000 of dividend income from the C corporation.
C)$90,000 income from the S corporation and $0 income from the C corporation.
D)$90,000 income from the S corporation and $30,000 income from the C corporation.
E)None of the above.

Question

Quizplus · Accepted Answer

Since Bjorn owns a 60% interest in the S corporation, he is allocated 60% of the earnings of the corporation, which is $150,000 x 60% = $90,000. Of this amount, he received $30,000 as a distribution, so he must report $60,000 ($90,000 - $30,000) of income from the S corporation. 
For the C corporation, Bjorn received $30,000 in dividends, which is taxable income. Therefore, he must report $30,000 of income from the C corporation. 
So, the total income Bjorn must report from these businesses is $60,000 + $30,000 = $90,000 from the S corporation and $30,000 from the C corporation. Choice D is the correct answer.

Bjorn Owns a 60% Interest in an S Corporation That