Packard Corporation reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $340,000. Included in the taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from 20X2 of $10,000 utilized in 20X3, and gain of $50,000 recognized on the collection of cash from an installment sale that took place in 20X1. The corporation's current E&P for 20X3 would be:

Question

Quizplus · Accepted Answer

The current E&P is calculated by starting with taxable income and making adjustments for items not included in E&P, and subtracting items included in taxable income but not in E&P. The dividends received deduction and net capital loss carryover are adjustments that increase E&P, while the gain on the installment sale is added back to taxable income but excluded from E&P. Therefore, the calculation would be as follows:

Taxable income: $1,000,000
Add: Net capital loss carryover utilized in 20X3: $10,000
Less: Gain on installment sale collected in 20X1: ($50,000)
E&P: $960,000

Since the corporation paid federal income taxes of $340,000, we can also calculate the current E&P after deducting taxes paid:

E&P after taxes: $620,000 (which is $960,000 - $340,000)

Therefore, the best choice is D) $625,000, which is closest to the E&P after taxes of $620,000.

Packard Corporation Reported Taxable Income of $1,000,000 in 20X3 and Paid