This problem is from Federal income taxation of Corporations and Shareholder 7th
ID: 2716054 • Letter: T
Question
This problem is from Federal income taxation of Corporations and Shareholder 7th edition (James S. Eustice) 5A (9)
The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply). Use a 34% corporate tax rate in this problem. X has always been an S corporation. During the current year, X accrued income and expenses as follows:
Gross income from Busines $500
Dividends on AT&T stock (consider &243) $100
Interest on municipal bonds (&103) 100
Capital gain 100
Total $800
Deductible &162(a)(1) business expense 430
Noncaptial expenses not deductible under &162(e) 90
Capital losses (see &1211 (a) 146
Total 66
Net $134
Suppose that Y is an individual and that X has always been an S Corporation.
a) What is X's E&P?
For the answer can you please explain how do you get the result.
Explanation / Answer
Computation of E&P
Working note:
Claculation of tax
Profit befor Tax $134
Add:Nondeductible expenses $90
Add: Capital loss $146
Less: Capital loss allowed $100
Taxabli income $270
Tax @34% $91.80
Note: Capital loss are allowable to the extent of capital gain. Thus $46 of unexhausted capital oss is been added back.
Particulars Amount Business Income $500 Dividend $100 Interest on bonds $100 Capital gain $100 Total income $800 Less: Expenses ($430+$90+$146) $666 Profit before tax $134 less: tax @34% $91.80 E&P $42.20Related Questions
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