Rose Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year.

Federal income taxes paid $110,000
Net operating loss carryforward deducted currently 70,000
Gain recognized this year on an installment sale from a prior year 44,000
Depreciation deducted on tax return (ADS depreciation would have been $10,000) 40,000
Interest income on Iowa state bonds 8,000
Rose Corporation’s current E & P is:

Question

Rose Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year.

Federal income taxes paid	$110,000
Net operating loss carryforward deducted currently	70,000
Gain recognized this year on an installment sale from a prior year	44,000
Depreciation deducted on tax return (ADS depreciation would have been $10,000)	40,000
Interest income on Iowa state bonds	8,000
Rose Corporation’s current E & P is:

Quizplus · Accepted Answer

Starting with taxable income of $300,000 and subtracting the following:

- Federal income taxes paid of $110,000
- Net operating loss carryforward deducted currently of $70,000
- Depreciation deducted on tax return of $40,000 (since ADS depreciation would have been $10,000, there's a $30,000 difference that reduces taxable income)
- Gain recognized this year on an installment sale from a prior year of $44,000

This leaves Rose Corporation with $36,000 of taxable income. However, we also need to add back in the interest income on Iowa state bonds, which is not included in taxable income. Therefore, current E&P is $254,000 ($300,000 - $110,000 - $70,000 - $30,000 + $8,000 = $98,000 + $156,000 = $254,000).

Rose Corporation (A Calendar Year Taxpayer) Has Taxable Income of $300,000