Madison Corporation reported taxable income of $400,000 in 20X3 and accrued federal income taxes of $136,000. Included in the computation of taxable income was regular depreciation of $200,000 (E&P depreciation is $60,000) and a net capital loss carryover of $20,000 from 20X2 utilized in 20X3. The corporation's current earnings and profits for 20X3 would be:

Question

Quizplus · Accepted Answer

To calculate current earnings and profits (E&P), start with taxable income of $400,000. Add back the difference between regular and E&P depreciation ($200,000 - $60,000 = $140,000) since E&P uses a different depreciation method. The net capital loss carryover does not affect E&P. Therefore, E&P = $400,000 + $140,000 - $136,000 (federal income taxes) = $404,000.

Madison Corporation Reported Taxable Income of $400,000 in 20X3 and Accrued