Abbot Corporation reported a net operating loss of $400,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $100,000 (E&P depreciation is $40,000), first-year expensing under §179 of $50,000, and a dividends received deduction of $10,000. The corporation's current E&P for 20X3 would be:
A)($330,000).
B)($290,000).
C)($400,000).
D)($490,000).

Question

Quizplus · Accepted Answer

The current E&P is calculated by starting with taxable income and then making adjustments for items that were included in taxable income but were not actually earned or included in E&P. The adjustments to taxable income are as follows: 
- Regular depreciation: add back $100,000 
- First-year expensing: add back $50,000 
- Dividends received deduction: subtract $10,000 
The resulting adjusted taxable income is $340,000 ($400,000 - $100,000 + $50,000 - $10,000). Since the corporation reported a net operating loss of $400,000 and elected to carry it forward to 20X4, the taxable income for 20X3 must have been zero. Therefore, the current E&P for 20X3 is equal to the adjustments to taxable income, or $340,000.

Abbot Corporation Reported a Net Operating Loss of $400,000 in 20X3