Taxation

Compute current E & P for Jade Corporation (a calendar year, accrual basis taxpayer).

Jade had the following transactions during 2010, its second year of operation. l Jade uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2010. l Jade sold some property on installments during 2009. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2010, Jade received a $15,000 payment on the installment sale. l Jade elected in 2009 to amortize qualified organizational expenses.

In determining Red Corporation’s current E & P for 2010, how should taxable income be adjusted as a result of the following transactions?

a. Interest on municipal bonds received in 2010.

b. A capital loss carryover from 2009, fully used in 2010.

c. Nondeductible meal expenses in 2010. d. Loss on a sale between related parties in 2010.

e. Federal income tax refund received in 2010.

f. Nondeductible lobbying expenses in 2010.

Solution:

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