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Ozark Corporation reported taxable income of $500,000 from operations for 20X3. During the year, the company...

Ozark Corporation reported taxable income of $500,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Marcus Twain. The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000. Marcus assumed a mortgage attached to the land of $25,000. Ozark's tax rate is 21%. The company had accumulated E&P of $850,000 at the beginning of the year. Compute Ozark's total taxable income and federal income tax paid because of the distribution. Using your solution, compute Ozark's accumulated E&P at January 1, 20X4. (Show all work)

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Answer #1

Answer = taxable income = $500000

Federal income tax paid = $105000

Accumulated E&P = $1145000

Taxable income 500000
Loss on distribution of land(100000-125000) is disallowed 0
Total taxable income 500000
Subtract:Federal income tax (500000×21%) (105000)
Current E&P 395000
Subtract: E&P basis of land distribution (125000)
Add: mortgage assumed by marcus 25000
Current E&P after distribution 295000
Accumulated E&P, begining of 20x3 850000
Accumulated E&P, begining of 20x4 1145000

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