Lanco Corporation, an accrual-method corporation, reported taxable income of $1,720,000 this year and paid Federal income tax of $361,200. Included in the computation of taxable income were the following items: • MACRS depreciation of $253,000. Depreciation for earnings and profits purposes is $124,000. • A net capital loss carryover of $13,700 from last year. • A net operating loss carryover of $31,000 from last year. • $76,750 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 $8,600. • Life insurance proceeds of $267,000. • Excess current-year charitable contribution of $2,300 (to be carried over to next year). • Tax-deferred gain of $21,300 on a like-kind exchange. • Nondeductible life insurance premium of $4,700. • Nondeductible interest expense of $3,600 on a loan used to buy tax-exempt bonds. Lanco's accumulated E&P at the beginning of the year was $2,520,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi: • June 30: $60,000. • September 30: Parcel of land with a fair market value of $95,250. Lanco's adjusted tax basis in the land was $18,500. Luigi assumed an existing mortgage on the property of $16,900. Required: 1. Compute Lanco's current E&P. 2. Compute the amount of dividend income reported by Luigi this year because of the distributions. 3. Compute Lanco's accumulated E&P at the beginning of next year.
Lanco Corporation, an accrual-method corporation, reported taxable income of $1,720,000 this year and paid Federal income tax of $361,200. Included in the computation of taxable income were the following items: • MACRS depreciation of $253,000. Depreciation for earnings and profits purposes is $124,000. • A net capital loss carryover of $13,700 from last year. • A net operating loss carryover of $31,000 from last year. • $76,750 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 $8,600. • Life insurance proceeds of $267,000. • Excess current-year charitable contribution of $2,300 (to be carried over to next year). • Tax-deferred gain of $21,300 on a like-kind exchange. • Nondeductible life insurance premium of $4,700. • Nondeductible interest expense of $3,600 on a loan used to buy tax-exempt bonds. Lanco's accumulated E&P at the beginning of the year was $2,520,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi: • June 30: $60,000. • September 30: Parcel of land with a fair market value of $95,250. Lanco's adjusted tax basis in the land was $18,500. Luigi assumed an existing mortgage on the property of $16,900. Required: 1. Compute Lanco's current E&P. 2. Compute the amount of dividend income reported by Luigi this year because of the distributions. 3. Compute Lanco's accumulated E&P at the beginning of next year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lanco Corporation, an accrual-method corporation, reported taxable income of $1,720,000 this year and paid Federal
income tax of $361,200. Included in the computation of taxable income were the following items:
• MACRS depreciation of $253,000. Depreciation for earnings and profits purposes is $124,000.
• A net capital loss carryover of $13,700 from last year.
• A net operating loss carryover of $31,000 from last year.
$76,750 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 $8,600.
• Life insurance proceeds of $267,000.
• Excess current-year charitable contribution of $2,300 (to be carried over to next year).
• Tax-deferred gain of $21,300 on a like-kind exchange.
• Nondeductible life insurance premium of $4,700.
• Nondeductible interest expense of $3,600 on a loan used to buy tax-exempt bonds.
.
Lanco's accumulated E&P at the beginning of the year was $2,520,000. During the year, Lanco made the following
distributions to its sole shareholder, Luigi:
• June 30: $60,000.
• September 30: Parcel of land with a fair market value of $95,250. Lanco's adjusted tax basis in the land was $18,500.
Luigi assumed an existing mortgage on the property of $16,900.
Required:
1. Compute Lanco's current E&P.
2. Compute the amount of dividend income reported by Luigi this year because of the distributions.
3. Compute Lanco's accumulated E&P at the beginning of next year.
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