C is corrent. The requirement is to determine the amount of ordinary business income that Boles Corporation should report on its Form 1120S, US Income Tax Return for an S corporation, Schedule K. As a pass-through entity, an S corporation’s items must be divided into (1) nonseparately stated income or loss from trade or business activities, and (2) items of income, loss, deduction, and credit, the separate treatment of which could affect the tax liability of any shareholder. Boles’ $50,000 of gross receipts, $2,000 of supplies expense, and $1,500 of utilities expense are all ordinary income and deduction items and are netted in arriving at Boles’ nonseparately stated business income of $46,500. In contrast, the $5,000 of dividend income from investments must be separately stated and passed through to shareholders in order to preserve its characteristic as an item of portfolio income.
A is incorrect. Only the dividend income must be separately stated.
B is incorrect. Only the dividend income must be separately stated.
D is incorrect. Only the dividend income must be separately stated.
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