Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it

Question:

Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a public library.) Cardinal borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding these three items, Cardinal’s taxable income is $500,000, on which it paid Federal income tax of $131,250 during the year.

a. What is Cardinal’s taxable income after these items are taken into account?

b. What is Cardinal’s accumulated E & P at the end of the tax year if its beginning E & P balance was $150,000?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... 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...

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