Au Sable Corporation reported taxable income of $800,000 in 20X3 and paid federalincome taxes of $272,000. Not included in the computation was a disallowed penalty of$25,000, life insurance proceeds of $100,000, and a Federal income tax refund from20X2 of $50,000. Au Sable is an accrual basis taxpayer. The corporation's current earnings and profits for 20X3 would be:

Question

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Taxable income: $800,000
Add: Disallowed penalty: $25,000
Life insurance proceeds: $100,000
Federal income tax refund: $50,000

Total income: $975,000

Less: Federal income tax paid: $272,000

Taxable income before adjustments: $703,000

Current earnings and profits:
Taxable income before adjustments: $703,000
Add: Disallowed penalty: $25,000
Life insurance proceeds: $100,000
Federal income tax refund: $50,000

Total income for E&P calculation: $878,000

Less: Federal income tax paid: $272,000

Current earnings and profits: $606,000

Therefore, the correct answer is B.

Au Sable Corporation Reported Taxable Income of $800,000 in 20X3