Question

Lanco Corporation, an accrual-method corporation, reported taxable income of $2,040,000 this year. Included in the computation of taxable income were the following items:
 

• MACRS depreciation of $318,000. Straight-line depreciation would have been $203,000.

• A net capital loss carryover of $19,100 from last year.

• A net operating loss carryover of $34,900 from last year.

• $69,800 capital gain from the distribution of land to the company’s sole shareholder (see below).

Not included in the computation of taxable income were the following items:
 

• Tax-exempt income of $8,200.

• Life insurance proceeds of $336,000.

• Excess current-year charitable contribution of $3,800 (to be carried over to next year).

• Tax-deferred gain of $23,800 on a like-kind exchange.

• Federal income tax refund from last year of $42,400.

• Nondeductible life insurance premium of $3,700.

• Nondeductible interest expense of $1,200 on a loan used to buy tax-exempt bonds.

Lanco's accumulated E&P at the beginning of the year was $2,450,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:
 

• June 30: $88,000.

• September 30: Parcel of land with a fair market value of $80,500. Lanco’s tax basis in the land was $10,700. Lug assumed an existing mortgage on the property of $18,500.

Required:
 

1. Compute Lanco’s current E&P.

2. Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions.

3. Compute Lanco’s accumulated E&P at the beginning of next year.