In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any increase (or decrease) in each as a result of the transaction. Assume that E & P has already been increased by taxable income. Enter a decrease as a negative number by using the minus sign. If there is no effect, enter "0". Taxable Income E & P Transaction Increase (Decrease) Increase (Decrease) a. Realized gain of $80,000 on involuntary conversion of building ($10,000 of gain is recognized). b. Mining exploration costs incurred on May 1 of current year; $24,000 is deductible from current-year taxable income. C. Sale of equipment to unrelated third party for $240,000; basis is $120,000 (no election out of installment method; no payments are received in current vear).
In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any increase (or decrease) in each as a result of the transaction. Assume that E & P has already been increased by taxable income. Enter a decrease as a negative number by using the minus sign. If there is no effect, enter "0". Taxable Income E & P Transaction Increase (Decrease) Increase (Decrease) a. Realized gain of $80,000 on involuntary conversion of building ($10,000 of gain is recognized). b. Mining exploration costs incurred on May 1 of current year; $24,000 is deductible from current-year taxable income. C. Sale of equipment to unrelated third party for $240,000; basis is $120,000 (no election out of installment method; no payments are received in current vear).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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See Attached 5-28
Transcribed Image Text:Problem 5-28 (LO. 1, 2)
In each of the following independent situations, indicate the effect on taxable income and E & P, stating the amount of any increase (or
decrease) in each as a result of the transaction.
Assume that E & P has already been increased by taxable income.
Enter a decrease as a negative number by using the minus sign. If there is no effect, enter "0".
Taxable Income
E & P
Transaction
Increase (Decrease)
Increase (Decrease)
a. Realized gain of $80,000 on involuntary conversion of building ($10,000
of gain is recognized).
b. Mining exploration costs incurred on May 1 of current year; $24,000 is
deductible from current-year taxable income.
c. Sale of equipment to unrelated third party for $240,000; basis is
$120,000 (no election out of installment method; no payments are
received in current year).
d. Dividends of $20,000 received from 5% owned corporation, together with
dividends received deduction (assume that taxable income limit does not
apply).
e. Additional first-year (bonus) depreciation of $45,000 claimed in current
year.
f. Section 179 expense deduction of $25,000 in current year.
g. Impact of current-year § 179 expense deduction in succeeding year.
h. MACRS depreciation of $80,000. ADS depreciation would have been
$90,000.
i. Federal income taxes of $80,000 paid in current year.
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