Question 39. [LO2] Boilermaker, Inc. reported taxable income of $500,000 this year

39. [LO2] Boilermaker, Inc. reported taxable income of $500,000 this year and paid federal income taxes of $170,000. Not included in the company’s computation of taxable income is tax-exempt income of $20,000, disallowed meals and entertainment expenses of $30,000, and disallowed expenses related to the tax-exempt income of $1,000. Boilermaker deducted depreciation of $100,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $60,000. Compute the company’s current E&P.

40. [LO2] Gator, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $340,000. Included in the company’s computation of taxable income is gain from sale of a depreciable asset of $50,000. The income tax basis of the asset was $100,000. The E&P basis of the asset using the alternative depreciation system was $175,000. Compute the company’s current E&P.

41. [LO2] Paladin, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $340,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $100,000 net capital loss carryover from last year, resulting in a net capital gain of $50,000 included in taxable income. Compute the company’s current E&P.

42. [LO2] Volunteer Corporation reported taxable income of $500,000 from operations for this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $75,000 and its tax and E&P basis to Volunteer was $25,000. Rocky assumed a mortgage attached to the land of $15,000. Any gain from the distribution will be taxed at 34 percent. The company had accumulated E&P of $750,000 at the beginning of the year.

a. Compute Volunteer’s total taxable income and federal income tax.

b. Compute Volunteer’s current E&P before the distribution.

c. Compute Volunteer’s accumulated E&P at the beginning of next year.

d. What amount of dividend income does Rocky report as a result of the distribution?

e. What is Rocky’s income tax basis in the land received from Volunteer?

43. [LO2] Tiger Corporation reported taxable income of $500,000 from operations for this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Mike Woods. The land’s fair market value was $75,000 and its tax and E&P basis to Tiger was $125,000. Mike assumed a mortgage attached to the land of $15,000. Any gain from the distribution will be taxed at 34 percent. The company had accumulated E&P of $750,000 at the beginning of the year.

a. Compute Tiger’s total taxable income and federal income tax.

b. Compute Tiger’s current E&P before the distribution.

c. Compute Tiger’s accumulated E&P at the beginning of next year.

d. What amount of dividend income does Mike report as a result of the distribution?

e. What is Mike’s tax basis in the land he received from Tiger?

44. [LO2] Illini Corporation reported taxable income of $500,000 from operations for this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of an automobile to its sole shareholder, Carly Urbana. The auto’s fair market value was $30,000 and its tax basis to Illini was $0. The auto’s E&P basis was $15,000. Any gain from the distribution will be taxed at 34 percent. Illini had accumulated E&P of $1,500,000.

a. Compute Illini’s total taxable income and federal income tax.

b. Compute Illini’s current E&P before the distribution.

c. Compute Illini’s accumulated E&P at the beginning of next year.

d. What amount of dividend income does Carly report as a result of the distribution?

e. What is Carly’s tax basis in the auto she received from Illini?

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