Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2021, its second year of operation:TransactionsCostTaxable income$330,000Federal income tax liability paid$69,300Tax-exempt interest income$5,000Meals expense provided by a restaurant (total)$3,000Premiums paid on key employee life insurance$3,500Increase in cash surrender value attributable to life insurance premiums$700Proceeds from key employee life insurance policy$130,000Cash surrender value of life insurance policy at distribution$20,000Excess of capitol losses over capital gains$13,000MACRS deduction$26,000Straight-line depreciation using ADS lives$16,000Section 179 expense elected during 2020$25,000Dividends received from domestic corporations (less than 20% owned)$35,000Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2021. In addition, Sparrow sold property on installment during 2020. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2021, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2021, its second year of operation:

Transactions	Cost
Taxable income	$330,000
Federal income tax liability paid	$69,300
Tax-exempt interest income	$5,000
Meals expense provided by a restaurant (total)	$3,000
Premiums paid on key employee life insurance	$3,500
Increase in cash surrender value attributable to life insurance premiums	$700
Proceeds from key employee life insurance policy	$130,000
Cash surrender value of life insurance policy at distribution	$20,000
Excess of capitol losses over capital gains	$13,000
MACRS deduction	$26,000
Straight-line depreciation using ADS lives	$16,000
Section 179 expense elected during 2020	$25,000
Dividends received from domestic corporations (less than 20% owned)	$35,000

Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2021. In addition, Sparrow sold property on installment during 2020. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2021, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.

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