In each of the following independent situations, indicate the effect on taxable income and E & P,

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Question:

In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any increase (or decrease) in each as a result of the transaction. Assume that E & P has already been increased by taxable income.

Transaction

Taxable Income Increase (Decrease)

E & P Increase (Decrease)

a. Realized gain of $80,000 on the involuntary conversion of building ($10,000 of gain is recognized).

b. Mining exploration costs incurred on May 1 of the current year; $24,000 is deductible from current-year taxable income.

c. Sale of equipment to an unrelated third party for $240,000; the basis is $120,000 (no election out of installment method; no payments are received in the current year).

d. Dividends of $20,000 received from 5% owned corporation, together with dividends received deduction (assume that taxable income limit does not apply).

e. Domestic production activities deduction of $45,000 claimed in the current year.

f. Section 179 expense deduction of $100,000 in the current year.

g. Impact of current-year 179 expense deduction in succeeding year.

h. MACRS depreciation of $80,000. ADS depreciation would have been $90,000.

i. Federal income taxes of $80,000 paid in the current year.