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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.
Transaction
Taxable Income Increase (Decrease)
E & P 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. Domestic production activities deduction of $45,000 claimed in current year.
___________
___________
f. Section 179 expense deduction of $100,000 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.
___________
___________

Respuesta :

jepessoa

Answer:

a. Realized gain of $80,000 on involuntary conversion of building ($10,000 of gain is recognized).

  • Taxable Income INCREASE BY $10,000
  • E & P Increase NO EFFECT

b. Mining exploration costs incurred on May 1 of current year; $24,000 is deductible from current-year taxable income.

  • Taxable Income DECREASE BY $20,000
  • E & P Increase INCREASE BY $24,000

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).

  • Taxable Income NO EFFECT
  • E & P INCREASE BY $120,000

d. Dividends of $20,000 received from 5% owned corporation, together with dividends received deduction (assume that taxable income limit does not apply).

  • Taxable Income INCREASE BY $6,000
  • E & P INCREASE BY $14,000

e. Domestic production activities deduction of $45,000 claimed in current year.

  • Taxable Income DECREASE BY $45,000
  • E & P INCREASE BY $45,000

f. Section 179 expense deduction of $100,000 in current year.

  • Taxable Income DECREASE BY $100,000
  • E & P INCREASE BY $80,000

g. Impact of current-year section 179 expense deduction in succeeding year.

  • Taxable Income NO EFFECT
  • E & P DECREASE BY $20,000

h. MACRS depreciation of $80,000. ADS depreciation would have been $90,000.

  • Taxable Income DECREASE BY $10,000
  • E & P INCREASE BY $10,000

i. Federal income taxes of $80,000 paid in current year.

  • Taxable Income NO EFFECT
  • E & P Increase NO EFFECT

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