Question

Luis is the sole shareholder of a corporation, and Eduardo owns a sole proprietorship. Both businesses were started in year 2015, and both make a profit of $80,000 in year 2015. Each owner withdraws $50,000 from his business during the year to pay personal expenses. Which one of the following statements is incorrect?

a. Eduardo must report net profit from his business of $80,000 for 2015.
b. Luis must report dividend income of $80,000 for 2015.
c. Eduardo’s proprietorship (as opposed to Eduardo) is not required to pay tax on the $80,000 profit for 2015.
d. Luis’s corporation must pay tax on $80,000 for 2015.
e. None of the above.

Answer 1

b. Luis must report dividend income of $80,000 for 2015.

Step-by-step explanation:

Given that

Both businesses were started in the year 2015 and makes a profit of $80,000 per year each. Along with it, each one withdraws $50,000 for their personal expenses

Now we have to go the given options

As we can see that since there is $80,00 profit that is earned by both of them so, in this case, a option, c and d option is correct

Therefore the option left is b. so it would be the incorrect option