The stock of X is owned equally by two shareholders: Y (an individual with a sto
ID: 2453641 • Letter: T
Question
The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with a stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply.) Use a 34 percent corporate tax rate in this problem During the current year, X accrued income and expense as set forth :
Gross income from business $500
Dividends on AT&T stock (consider section 243) $100
Interest on municipal bonds (section103) $100
Capital gain $100
Total $800
Deducible section162 (a)(1) business expenses $430
Noncapital expenses not deductible under section162 (e)$90
Capital losses (section1211 (a)) $146
Total $666
Net $134
X has always been an S corporation. What is X’s E&P?
Please show your calculation step by step. Thank you.
Explanation / Answer
Computation of E&P
Working note:
Claculation of tax
Profit befor Tax $134
Add:Nondeductible expenses $90
Add: Capital loss $146
Less: Capital loss allowed $100
Taxabli income $270
Tax @34% $91.80
Note: Capital loss are allowable to the extent of capital gain. Thus $46 of unexhausted capital oss is been added back.
Particulars Amount Business Income $500 Dividend $100 Interest on bonds $100 Capital gain $100 Total income $800 Less: Expenses ($430+$90+$146) $666 Profit before tax $134 less: tax @34% $91.80 E&P $42.20Related Questions
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