Corporate Earnings, Distributions, Redemptions and Liquidations (50 pts)In each of the following...

Question

Corporate Earnings, Distributions, Redemptions and Liquidations (50 pts)In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any increase (or decrease) that occurs as a result of the transaction. Assume E&P has already been increased by taxable income.Paste the following table into a Microsoft Word document (or replicate the table), fill in the blank cells, and provide a brief, 1-3 sentence explanation/justification of your answers for each row in a numbered list below the table.
	
Document Preview: TransactionTaxable Income Increase (Decrease)E&P Increase1.0 Realized gain of $50,000 on involuntaryconversion of building ($30,000 of gain is recognized) 	2. Mining exploration costs incurred on June 1 of the current year; $24,000 is deductible fromcurrent-year taxable income3. Sale of equipment to unrelated third party for $300,000; basis is $200,000 (no election outof installment method; no payments are received in the current year).4. Dividends of $35,000 received from 5%-owned corporation, together with dividends received deduction (assume taxable income limit does not apply).5. Domestic production activities deduction of $55,000 is claimed in current year.6. Section 179 expense deduction of $45,000 in current year.7. Impact of current-year section 179 expensededuction for previous item in succeeding year.8. MACRS depreciation of $80,000.  ADS depreciation would have been $88,000.9. Federal income taxes paid in the current year of $52,000	

Robert · Accepted Answer

Transaction
	Taxable Income Increase (Decrease)
	E&P Increase
	1.0 Realized gain of $50,000 on involuntary
conversion of building ($30,000 of gain is recognized) 
	The increase in the taxable income is equal to the gain recognized. The taxable income is $30,000. The involuntary conversion of building has not effect on the taxable income. 
	Realized gain of $50,000 on involuntary conversion of building has no effect on E & P increase. E & P remains unaffected.
	2. Mining exploration costs incurred on June 1 of 
the current year; $24,000 is deductible from
current-year taxable income
	As indicated in the transaction, $24,000 is deducted from the current year-taxable income. The taxable income is reduced by $24,000. 
	When computing E & P, they are amortized over 120 months. Since $200 per month ($24,000/120) is amortizable, $1,400 is deductible for E & P purposes. Therefore, $24,000 as income tax deduction, $22,600 is added back to E & P. 
	3. Sale of equipment to unrelated third party
 for $300,000; basis is $200,000 (no election out
of installment method; no payments are received
 in the current year).

Corporate Earnings, Distributions, Redemptions and Liquidations (50 pts) In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any...

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