Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2021, its second year of operation: Transactions Cost Taxable income $330,000 Federal income tax liability paid $69,300 Tax-exempt interest income $5,000 Meals expense provided by a restaurant (total) $3,000 Premiums paid on key employee life insurance $3,500 Increase in cash surrender value attributable to life insurance premiums $700 Proceeds from key employee life insurance policy $130,000 Cash surrender value of life insurance policy at distribution $20,000 Excess of capitol losses over capital gains $13,000 MACRS deduction $26,000 Straight-line depreciation using ADS lives $16,000 Section 179 expense elected during 2020 $25,000 Dividends received from domestic corporations (less than 20% owned) $35,000 Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2021. In addition, Sparrow sold property on installment during 2020. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2021, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2021, its second year of operation: Transactions Cost Taxable income $330,000 Federal income tax liability paid $69,300 Tax-exempt interest income $5,000 Meals expense provided by a restaurant (total) $3,000 Premiums paid on key employee life insurance $3,500 Increase in cash surrender value attributable to life insurance premiums $700 Proceeds from key employee life insurance policy $130,000 Cash surrender value of life insurance policy at distribution $20,000 Excess of capitol losses over capital gains $13,000 MACRS deduction $26,000 Straight-line depreciation using ADS lives $16,000 Section 179 expense elected during 2020 $25,000 Dividends received from domestic corporations (less than 20% owned) $35,000 Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2021. In addition, Sparrow sold property on installment during 2020. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2021, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 35P
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Prepare your answers using clearly written computations. Show your work
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2021, its second year of operation:
| Transactions | Cost |
|---|---|
| Taxable income | $330,000 |
| Federal income tax liability paid | $69,300 |
| Tax-exempt interest income | $5,000 |
| Meals expense provided by a restaurant (total) | $3,000 |
| Premiums paid on key employee life insurance | $3,500 |
| Increase in cash surrender value attributable to life insurance premiums | $700 |
| Proceeds from key employee life insurance policy | $130,000 |
| Cash surrender value of life insurance policy at distribution | $20,000 |
| Excess of capitol losses over |
$13,000 |
| MACRS deduction | $26,000 |
| Straight-line |
$16,000 |
| Section 179 expense elected during 2020 | $25,000 |
| Dividends received from domestic corporations (less than 20% owned) | $35,000 |
Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2021. In addition, Sparrow sold property on installment during 2020. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2021, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.
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ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT