Lanco Corporation, an accrual-method corporation, reported taxable income of $1,890,000 this year. Included in the computation of
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Question:
Lanco Corporation, an accrual-method corporation, reported taxable income of $1,890,000 this year. Included in the computation of taxable income were the following items:
- MACRS depreciation of $259,000. Depreciation for earnings and profits purposes is $134,000.
- A net capital loss carryover of $16,800 from last year.
- A net operating loss carryover of $27,300 from last year.
- $74,700 capital gain from the distribution of land to the company’s sole shareholder (see below).
Not included in the computation of taxable income were the following items:
- Tax-exempt income of $9,600.
- Life insurance proceeds of $339,000.
- An excess current-year charitable contribution of $5,000 (to be carried over to next year).
- Tax-deferred gain of $21,500 on a like-kind exchange.
- Nondeductible life insurance premium of $5,000.
- Nondeductible interest expense of $3,600 on a loan used to buy tax-exempt bonds.
Lanco's accumulated E&P at the beginning of the year was $3,030,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:
- June 30: $64,500.
- September 30: Parcel of land with a fair market value of $85,500. Lanco’s adjusted tax basis in the land was $10,800. Lug assumed an existing mortgage on the property of $21,200.
Required:
- Compute Lanco’s current E&P.
- Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions.
- Compute Lanco’s accumulated E&P at the beginning of next year.
Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
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