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 library.) Cardinal borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding these items, Cardinal’s taxable income is $500,000.

a. What is Cardinal Corporation’s taxable income after these items are taken into account?
b. What is Cardinal Corporation’s accumulated E & P at the start of next year if its beginning balance this year is $150,000?