Question


Volunteer 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, Rocky Topp. The land’s fair market value was $75,000 and its tax and E&P basis to Volunteer was $25,000. Rocky assumed a mortgage attached to the land of $15,000. Any gain from the distribution will be taxed at 21 percent. The company had accumulated E&P of $750,000 at the beginning of the year.

c. Compute Volunteer’s accumulated E&P at the beginning of next year.

accumulated E&P at the beginning of next year?


Homework Answers

Answer #1

answer is $$1,124,500

Taxable income = Taxable income from operations +Gain on distribution of land = $500,000+($75,000 - $25,000) = $550,000

Federal income tax = ($550,000 x 21%)= 115500

Current E&P = Taxable income-Federal income tax-Adjustment for E&P gain on distribution of land = 550,000-115500-0 = $434,500

Part C

Current E&P

434,500

Less: Fair market value of land distributed in current year

(75,000)

Add: Mortgage assumed by Rocky

15000

CE&P after distribution

$374500

Accumulated E&P, beginning of current year

750,000

Accumulated E&P, beginning of next year

$1,124,500

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