Question

Gorm Inc., a cash-method C corporation, had taxable income of $250,000 for its initial taxable year...

  1. Gorm Inc., a cash-method C corporation, had taxable income of $250,000 for its initial taxable year (year 1). A review of company records revealed the following information:
    1. Gorm’s estimated federal income tax payments made during the year totaled $40,000.
    2. The current-year tax depreciation expense on furniture and fixtures, the only asset owned by Gorm, was $12,000. If Gorm had used the alternative depreciation system (straight-line method), depreciation expense deducted would have been $5,000.
    3. Gorm had tax-exempt interest income of $21,000 that was not been included in taxable income.
    4. Gorm had $9,000 of organizational expense amortization that was deducted from taxable income.
    5. Gorm reported a $25,000 gain on an installment sale of a non-inventory item in taxable income. The total gain on the sale was $100,000.
    6. Gorm received a $4,000 dividend from X Corporation, of which Gorm owns 15% of the shares. The dividend income and associated dividend received deduction were included in taxable income.

Instructions:

Compute Gorm Inc.’s current earnings and profits (E&P) at the close of the current year

(year 1).

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