Reference no: EM131861375
Lanco Corporation, an accrual-method corporation, reported taxable income of $1,930,000 this year. Included in the computation of taxable income were the following items:
MACRS depreciation of $325,000. Straight-line depreciation would have been $219,000.
A net capital loss carryover of $13,600 from last year.
A net operating loss carryover of $31,400 from last year.
$83,550 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 $6,850.
Life insurance proceeds of $279,000.
Excess current year charitable contribution of $5,400 (to be carried over to next year).
Tax-deferred gain of $21,700 on a like-kind exchange.
Federal income tax refund from last year of $41,100.
Nondeductible life insurance premium of $5,900.
Nondeductible interest expense of $3,900 on a loan used to buy tax-exempt bonds.
Lanco paid federal income taxes this year of $656,200. The company’s accumulated E&P at the beginning of the year was $2,950,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:
June 30: $80,500.
September 30: Parcel of land with a fair market value of $93,750. Lanco’s tax basis in the land was $10,200. Lug assumed an existing mortgage on the property of $16,200.
Required:
a. Compute Lanco’s current E&P.
b. Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions.
c. Compute Lanco’s accumulated E&P at the beginning of next year.