Question 1

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2018.

-Dividends received deduction.

Accepted Answer

The dividends received deduction would increase current Earnings and Profits (E&P) because it is an item that reduces taxable income but does not reduce E&P.

Question 2

Meal expense not deducted in 2018 because of the 50% limitation.

Accepted Answer

The answer of Meal expense not deducted in 2018 because...

Question 3

A decrease in the LIFO recapture amount during the year.

Accepted Answer

The answer of A decrease in the LIFO recapture amount...

Question 4

Additional first-year bonus) depreciation deduction claimed in 2018.

Accepted Answer

The answer of Additional first-year bonus) depreciation deduction claimed in...

Question 5

Gain realized, but not recognized, in a like-kind exchange transaction in 2018.

Accepted Answer

The answer of Gain realized, but not recognized, in a...

Question 6

Premiums paid on key employee life insurance policy assume no increase in cash surrender value of policy) in 2018.

Accepted Answer

The answer of Premiums paid on key employee life insurance...

Question 7

Cash dividends distributed to shareholders in 2018.

Accepted Answer

The answer of Cash dividends distributed to shareholders in 2018....

Question 8

On January 1, Gold Corporation a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year.On March 31, the corporation distributes $40,000 to its sole shareholder, Ava basis in stock of
$8,000).Determine the effect of the distribution on Ava's taxable income and stock basis.

Accepted Answer

The answer of On January 1, Gold Corporation a calendar...

Question 9

Excess capital loss in year incurred.

Accepted Answer

The answer of Excess capital loss in year incurred....

Question 10

Daisy Corporation is the sole shareholder of Ostrich Corporation, which it hopes to sell within the next three years.The Ostrich stock basis of $25 million) is currently worth $30 million, but Daisy believes that it would be easier to find a buyer if it was worth less.To lower the value of its stock, Ostrich distributes $4 million cash to Daisy sufficient E & P exists to cover the distribution).At a later date, Daisy sells Ostrich for $26 million.
a.Because Daisy is the sole shareholder of Ostrich, it has a 100% dividends received deduction on the $4 million cash distribution.Thus, Daisy Corporation is not taxed on the $4 million distribution, and it has a gain on the sale of its stock in
a.What are the tax consequences to Daisy on the sale?
b.What would be the tax consequences if Ostrich had not first distributed the $4 million in cash and Daisy sold the Ostrich stock for $30 million?

Accepted Answer

The answer of Daisy Corporation is the sole shareholder of...

Question 11

Charitable contribution carryforward deducted in the current year.

Accepted Answer

Charitable contribution carryforwards deducted in the current year would increase current Earnings and Profits (E&P) because they are deductions for tax purposes but not for E&P calculations, thus reversing them adds back to E&P.

Question 12

Penalties paid to state government for failure to comply with state law.

Accepted Answer

The answer of Penalties paid to state government for failure...

Question 13

Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year.On July 1, she sells all of her stock to Matt for $1 million.On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000.Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1.How are the distributions taxed to Ashley and Matt? What is Ashley's recognized gain on the sale to Matt?

Accepted Answer

The answer of Ashley, the sole shareholder of Hawk Corporation,...

Question 14

Intangible drilling costs deducted currently.

Accepted Answer

Intangible drilling costs that are deducted currently for tax purposes but are not deductible for E&P calculations would increase current E&P because you would add back these expenses to taxable income to arrive at E&P.

Question 15

Gain realized but not recognized) on a like-kind exchange.

Accepted Answer

For E&P purposes, all gains, including those realized but not recognized under specific tax provisions like like-kind exchanges, must be accounted for. Therefore, the gain realized on a like-kind exchange, even though not recognized for taxable income purposes, will have no effect on the adjustment process when calculating current E&P for the year, as E&P calculations require the inclusion of all realized gains.

Question 16

Brown Corporation, an accrual basis corporation, has taxable income of $150,000 in the current year.Included in its determination of taxable income are the following transactions.
∙ Brown incurred a $65,000 capital loss from the sale of stock.Because Brown had no capital gains this year, none of the loss is deductible.
∙ The corporation's Federal income tax liability is $41,750.
∙ Brown incurred $18,000 in nondeductible meal expenses.
∙ Brown uses the LIFO method when accounting for inventory.This year, the company's LIFO recapture amount increased by $3,000.
∙ Brown claimed a dividends received deduction of $1,500.What is Brown's current E & P for the year?

Accepted Answer

The answer of Brown Corporation, an accrual basis corporation, has...

Question 17

Proceeds of life insurance received upon the death of a key employee policy had no cash surrender value).

Accepted Answer

Proceeds of life insurance received upon the death of a key employee, where the company is the beneficiary and the policy had no cash surrender value, are generally not taxable. However, for E&P calculations, these proceeds are added back to taxable income, resulting in an increase to current E&P.

Question 18

State income tax paid in the current year.

Accepted Answer

The answer of State income tax paid in the current...

Question 19

On January 1, Tulip Corporation a calendar year taxpayer) has accumulated E & P of $300,000.Its current E & P for the year is $90,000 before considering dividend distributions).During the year, Tulip distributes $600,000 $300,000 each) to its equal shareholders, Anne and Tom.Anne has a basis in her stock of $65,000, while Tom's basis is $120,000.What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Accepted Answer

The answer of On January 1, Tulip Corporation a calendar...

Question 20

Section 179 expense in second year following election.

Accepted Answer

The answer of Section 179 expense in second year following...

Quiz 13: Corporations: Earnings and Profits and Distributions

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2018. -Dividends received deduction.