14 December, 07:52

# Devi is the chief executive officer of Nishida Limited. Devi owns 20 percent of the common stock of Nishida. During the current year, Devi's salary is \$60,000 and he receives a \$30,000 bonus. Nishida has taxable income of \$200,000 and pays \$80,000 in cash dividends. How much gross income does Devi have ifNishida is a corporation?Nishida is an S corporation?

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Answers (1)
1. 14 December, 08:07
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Nashida is a C corporation. C corporation is still a small business but it shows the characteristics of entity concept. It is a separate entity different from its owners. It is taxed differently from its owners (Devi)

Devi's gross share of dividend is 20% of \$80,000 dividend equals \$16,000.

Therefore, devi's gross income if it is a C corporation equals \$60,000 + \$30,000 + \$16,000

=\$106,000.

Nashida is an S corporation is a limited and it is more attractive to a small business owner.

Devi is taxed separately on its gross income likewise other shareholders.

Devi is taxed on the following:

1. He will be taxed on \$90,000 (\$60,000 + \$30,000)

2. He will also be taxed on \$40,000 (\$200,000 x 20%)

So he will taxed on his total gross income of \$130,000 (\$90,000+\$40,000).

The \$16,000 of dividend will not be taxed because it is a distribution of capital.
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