Abbot Corporation reported a net operating loss of $500,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $200,000 (E&P depreciation is $35,000), first-year expensing under §179 of $60,000, and a dividends received deduction of $11,000. The corporation's current E&P for 20X3 would be:

Question

Quizplus · Accepted Answer

To calculate the current E&P, we must start with the taxable loss of $500,000 and add back any deductions that are not allowed for E&P purposes.

The regular depreciation of $200,000 is added back because E&P depreciation is only $35,000.

The first-year expensing under §179 is also added back because it is a temporary tax deduction and does not affect E&P.

The dividends received deduction of $11,000 is not allowed for E&P purposes, so it is not added back.

Therefore, the computation of the current E&P for Abbot Corporation is:

Taxable loss: $500,000 
Add back: 
Depreciation: $200,000 - $35,000 = $165,000 
§179 expensing: $60,000 
Total additions: $225,000 
Current E&P: ($500,000 + $225,000) = ($275,000)

Therefore, the correct answer is B.

Abbot Corporation Reported a Net Operating Loss of $500,000 in 20X3