True / False 1. Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year,both businesses make a net profit of $60,000. Neither business distributes any funds to the owners intheyear.For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucyisnotrequired to report any income from the corporation on her individual tax return. a. True b. False ANSWER: True RATIONALE: Proprietorship profits flow through to the owner and are reported on theowner’sindividual income tax return. It does not matter how much of the profit is withdrawn from the proprietorship. Thus, Tomas must report the net profit of$60,000 on his Form 1040 (Schedule C). Shareholders are required toreport income from a C corporation only to the extent of dividends received. Consequently, Lucy has no income to report from the corporation for thecurrentyear. Tomas is likely eligible for a qualified business income deduction. POINTS: 1 DIFFICULTY: Easy QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: CPET.SWFT.2020.LO: 2-01 - LO: 2-01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA: FN- Reporting KEYWORDS: Bloom's: Application OTHER: Time: 2 min. DATE CREATED: 1/9/2019 1:37 PM DATE MODIFIED: 2/23/2019 2:05 PM 2. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profitof$75,000 ($250,000 gross income – $175,000 operating expenses) and distributed $25,000 toeachpartner.Peach must pay tax on $75,000 of income. a. True b. False ANSWER: False RATIONALE: A partnership is not a taxpaying entity. Its profit (loss) and separate items flowthrough to the partners. The partnership’s Form 1065 reports net profit of $75,000.Carol and Candace both receive a Schedule K-1 reporting net profit of $37,500.