Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000

Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year.

Included in the computation of taxable income were the following items:

• MACRS depreciation of $200,000. Straight line depreciation would have been $120,000.

• A net capital loss carryover of $10,000 from last year

• A net operating loss carryover of $25,000 from last year

• $65,000 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 $5,000

• Life insurance proceeds of $250,000

• Excess current year charitable contribution of $2,500 (to be carried over to next year)

• Tax-deferred gain of $20,000 on a like-kind exchange

• Federal income tax refund from last yearof $35,000

• Non-deductible life insurance premium of $3,500

• Non-deductible interest expense of $1,000 on a loan used to buy tax-exempt bonds

Lanco paid federal income taxes this year of $496,400. The company's accumulated E&P at the beginning of the year was $2,400,000.

During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:

• June 30: $50,000

• September 30: Parcel of land with a fair market value of $75,000. Lanco's tax basis in the land was $10,000. Lug assumed an existing mortgage on the property of $15,000.

a. Compute Lanco's current E&P for this year.

b. Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions.

c. Compute Lanco's accumulated E&P at the beginning of next year.

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...