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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Prepare your answers using clearly written computations. Show your work
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 |
$13,000 |
| MACRS deduction | $26,000 |
| Straight-line |
$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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education