Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year. Included in the computation of taxable income were the following items: MACRS depreciation of $200,000. Depreciation for earnings and profits purposes is $120,000. A net capital loss carryover of $10,000 from last year. A net operating loss carryover of $25,000 from last year. $65,000 capital gain from the distribution of land to the company’s sole shareholder (see below). Not included in the computation of taxable income were the following items: Tax-exempt income of $5,000. Life insurance proceeds of $250,000. Excess current-year charitable contribution of $2,500 (to be carried over to next year). Tax-deferred gain of $20,000 on a like-kind exchange. Nondeductible life insurance premium of $3,500. Nondeductible interest expense of $1,000 on a loan used to buy tax-exempt bonds. Lanco’s accumulated E&P at the beginning of the year was $2,400,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt: June 30: $50,000. September 30: Parcel of land with a fair market value of $75,000. Lanco’s adjusted tax basis in the land was $10,000. Lug assumed an existing mortgage on the property of $15,000. Required: Compute Lanco’s current E&P before the distributions. Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions. Compute Lanco’s accumulated E&P at the beginning of next year.
Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year. Included in the computation of taxable income were the following items:
MACRS
A net capital loss carryover of $10,000 from last year.
A net operating loss carryover of $25,000 from last year.
$65,000
Not included in the computation of taxable income were the following items:
Tax-exempt income of $5,000.
Life insurance proceeds of $250,000.
Excess current-year charitable contribution of $2,500 (to be carried over to next year).
Tax-deferred gain of $20,000 on a like-kind exchange.
Nondeductible life insurance premium of $3,500.
Nondeductible interest expense of $1,000 on a loan used to buy tax-exempt bonds.
Lanco’s accumulated E&P at the beginning of the year was $2,400,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:
June 30: $50,000.
September 30: Parcel of land with a fair market value of $75,000. Lanco’s adjusted tax basis in the land was $10,000. Lug assumed an existing mortgage on the property of $15,000.
Required:
Compute Lanco’s current E&P before the distributions.
Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions.
Compute Lanco’s accumulated E&P at the beginning of next year.
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