[NinaElva]

Falcon, Inc.
Income Statement
For the year ended December 31, year 4

Sales
$ 1,200,000
Cost of goods sold
500,000
Gross profit
700,000

Salaries and wages
203,000
Repairs and maintenance
10,000
Depreciation expense
8,000
Charitable contributions
5,000
Payroll taxes
18,000
Penalties and fines
2,000
Business insurance
9,000
Total expenses
255,000
Income before other income (expense)
445,000

Other income (expense)

Bank interest income
1,000
Capital loss on sale of land
(20,000)
Total other income (expense)
(19,000)
Net income
$ 426,000

The MACRS depreciation on our assets was $20,000 for year 4. We did not purchase any new assets in year 4. The capital loss is for the sale of land used in our trade or business to an unrelated third party. The penalties and fines are for the late payment of payroll taxes.

What is Falcon’s year 4 ordinary business income (loss) to be reported on Form 1120S? Can someone explain how the answer is $440,000?

[jackiehanna87]

Here's how I got to $440,000:

Sales $ 1,200,000
Cost of goods sold (500,000)
Salaries and wages (203,000)
Repairs and maintenance (10,000)
Depreciation expense (8,000)
Business insurance (9,000)
Total Distributions to SH (30,000)

=Business Income 440,000

Just remember to look at all the attachments because that's where the distributions to shareholders is. Everything else doesn't apply to the business income, i.e charitable contributions will be a deduction and PR taxes are a credit to taxes.

Hope this helps. Good luck!

[Author]

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