Aeschbacker Joanna Unit 4 Assignment
Unit 4 Assignment
The exercise listed below is found on page C:4-29 of Prentice Halls Federal Taxation 2011.
Complete the exercise and submit your work to the instructor.
Water Corporation reports $500,000 of taxable income for the current year. The following
additional information is available:
For the current year, Water reports an $80,000 long-term capital loss and no capital gains.
Taxable income includes $80,000 of dividends from a 10%-owned domestic corporation
Water paid fines and penalties of $6,000 that were not deducted in computing taxable
income
In computing this years taxable income, deducted Water a $20,000 NOL carryover from
a prior tax year.
Water claimed a $10,000 U.S. production activities deduction
Taxable income includes a deduction for $40,000 of depreciation that exceeds the
depreciation allowed for E&P purposes.
Assume a 34% corporate tax rate. What is Waters current E&P for the year?
$500,000
-$80,000 capital loss
+$56,000 (70% of $80,000 dividends) Dividends received deduction
-$6,000 fines
+$20,000 NOL deduction
+$10,000 US Productions Activities deduction
+$40,000 excess depreciation
-$170,000 income taxes ($500,000 x 34% corporate tax rate)
$370,000 is the E and P for the cur rent year