Homework Answers
a. Calculation of current E&P
| Particulars | Amount |
| Taxable income | 1460000 |
|
Add: |
|
| Excess of MCRS depreciation over straight line method | 80000 |
| Net capital loss | 10000 |
| Net operating loss | 25000 |
| Tax exempt income | 5000 |
| Life insurance proceeds | 250000 |
| Less | |
| Excess charitable distribution | (2500) |
| Non deductible life insurance premium | (3500) |
| Non deductible interest expense | (1000) |
| Current E&P | 1823000 |
The federal income tax refund is not added back because Lanco is an accrual basis taxpayer. No adjustment is made for the capital gain recognized on the distribution to Lug because the land has the same basis for income tax and E&P purposes
b. Lug reports dividend income of $115000 which includes the cash distribution of $50000 and land distribution of $60000 (75000-15000 mortgage assumed)
c.
| Current E&P | 1823000 |
| Less: | |
| Cash dividend | 50000 |
| Fair market value of land | 60000 |
| Add: | |
| Mortgage assumed by Lug | 15000 |
| Current E&P after distribution | 1698000 |
| Accumulated E&P at the beginning of this year | 2400000 |
| Accumulated E&P at the beginning of next year | 4098000 |
Thank you
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