Grand River Corporation reported taxable income of $500,000 in year 1 and paid federal income taxes of $105,000.Not included in the computation was a disallowed meals expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000.The corporation's current earnings and profits for year 1 would be:

Question

Quizplus · Accepted Answer

To calculate current earnings and profits, we start with taxable income and make adjustments.

Taxable Income: $500,000

Add: 
- Disallowed meals expense: $2,000 
- Tax-exempt income: $1,000

Total: $503,000

Subtract: 
- Deferred gain on installment sale: $25,000

Current Earnings and Profits: $478,000

Therefore, the correct answer is C.

Grand River Corporation Reported Taxable Income of $500,000 in Year