- 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:
- Gorm’s estimated federal income tax payments made during the
year totaled $40,000.
- 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.
- Gorm had tax-exempt interest income of $21,000 that was not
been included in taxable income.
- Gorm had $9,000 of organizational expense amortization that was
deducted from taxable income.
- 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.
- 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).