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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 if

Nishida is a corporation?

Nishida is an S corporation?

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  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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