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Hey everyone! I was working on the AICPA Sample test and have a question on one of the SIMS. Can someone tell me how the answer to line 2 – Ordinary Business income is $440,000. Here is the question:
Falcon, Inc., is a calendar-year-end S corporation owned equally by two shareholders, Jennifer Sullivan and Marvin Darby. Falcon reports its income and expenses on the accrual method of accounting. Falcon has always been an S corporation and has no debt. Falcon’s controller has provided information for the completion of Falcon’s year 4 Form 1120S, U.S. Income Tax Return for an S Corporation. A copy of Falcon’s income statement for the year ended December 31, year 4, and additional information related to Falcon and its shareholders can be found in the exhibits above.
1. Falcon’s year 4 ordinary business income (loss) to be reported on Form 1120S
Here is the income statement:
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
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