Abbot Corporation reported a net operating loss of $450,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $150,000 (E&P depreciation is $65,000), first-year expensing under §179 of $55,000, and a dividends received deduction of $10,500. The corporation's current E&P for 20X3 would be:
A)($354,500).
B)($310,500).
C)($450,000).
D)($570,000).

Question

Quizplus · Accepted Answer

To calculate the current E&P, we need to start with the taxable income and make the necessary adjustments. The taxable loss of $450,000 is adjusted by adding back the regular depreciation of $150,000 and subtracting the first-year expensing of $55,000 and the dividends received deduction of $10,500. This gives us a taxable income of $415,500. Since E&P depreciation is different from regular depreciation, we need to add back the E&P depreciation of $65,000 to arrive at the current E&P of $480,500. However, since the corporation had a net operating loss, we need to reduce the current E&P by the amount of the loss, resulting in a final current E&P of ($310,500).

Abbot Corporation Reported a Net Operating Loss of $450,000 in 20X3