Question

The profit and loss statement of Kitsch Ltd., an S corporation, shows $94,000 book income. Kitsch is owned equally by four shareholders. James Billings is a 25% shareholder throughout the year. From supplemental data, you obtain the following information about items that are included in book income. SELLING EXPENSES -21,200 TAX-EXEMPT INTEREST INCOME 3,000 DIVIDENDS RECEIVED 9,000 SECTION 1231 GAIN 7,000 DEPRECIATION RECAPTURE INCOME 11,000 SALES REVENUE 225,200 NET INCOME FROM REAL ESTATE RENTALS 5,000 LONG TERM CAPITAL LOSS -6,000 SALARY PAID TO OWNERS -48,000 COST OF GOODS SOLD -91,000 Kitsch’s ordinary income or loss Billings allocated ordinary income (loss) Billings allocated tax exempt income

Answer 1

A.

Particulars	Amount ($)
Book income	94,000
Add: Long-term capital loss	6000
	100000
Less:Dividends received	(9000)
Less: Tax-exempt interest income	(3000)
Less: Section 1231 gain	(7000)
Recovery of bad debts	(5000)
Non separately stated income	76000

B.  portion of non separately stated income or loss for James Billings

	Amount ($)
Total non-separately stated income (A)	76000
Shareholders (B)	4
Total of James Billings Share (A/B)	19000

C. James Billings’ share of tax-exempt interest income:

	Amount ($)
Tax-exempt interest income (A)	3000
Shareholders (B)	4
James Billings’ share (A/B)	750

D. The income taxable to him this year $19000 is not taxable.