How much income should the taxpayer recognize in each of the following situations? Explain.
a. Julius owns a 25% interest in the Flyer Company, which is organized as a partnership.
During the current year, he is paid $14,000 by Flyer as a distribution of earnings. Flyer's taxable income for the year (calculated without any payments made to partners) is $60,000.
b. Felix owns 1,000 shares of Furr Company, which is a publicly traded corporation. Furr has 1,000,000 shares of stock outstanding during the current year. The company has a net income of $2,500,000 and pays out a $3 per share dividend during the current year.
c. Andrea is the sole proprietor of Andrea's Art Shop. During the current year, Andrea's has total revenue of $157,000 and total expenses of $110,000. Andrea draws a monthly salary of $2,600 from the shop that is not included in the $110,000 in expenses.
d. Maryanne owns 50% of the stock of Sterling Safe Company, an S corporation. During the current year, Sterling has a taxable income of $300,000 and pays out dividends of $120,000 to its shareholders.
e. Assume the same facts as in part d, except that Sterling incurs a loss of $60,000 during the current year.