Question

Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land’s fair market value was $20,000, and its tax and E&P basis to Beaver was $50,000. Eugenia assumed a mortgage on the land of $25,000. Beaver Corporation had accumulated E&P of $1,500,000. (Leave no answer blank. Enter zero if applicable.)

a) Compute Beaver's taxable income and federal income tax

Taxable Income= ?

Federal Income Tax= ?

b) Compute Beaver's current E&P

Current E&P= ?

Answer 1

a) Computation of Beavers taxable income and federal income tax:

Particulars	Amount ($)
Taxable income from operations	$50000
Loss on distribution of land (working note 1)	$0
Beaver's taxable income	$50000
Federal income tax (working note 2)	$0

Working notes:

1) Since land fair market value is $20000 which is less than mortgage on land i,e., $25000. So loss will not be recognised, so here land fair market value equals the value of mortgage assumed.

2) since there is no rate of federal income tax given. We have put $0 as per the question instruction.

b) Computation of Beaver's current E & P

Particulars	Amount ($)
Taxable income	$500000
Less: federal income tax	$0
Adjustment for E&P for the loss on distribution of land	$0
Beaver's current E & P	$50000