Question

Grand River Corporation reported taxable income of $500,000 in year 1 and paid federal income taxes of $105,000. Not included in the computation was a disallowed meals expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for year 1 would be:

Answer 1

The corporation's current earnings and profits for year one would be (A) $354,000.

What is taxable income?

• The base on which an income tax system levies tax is referred to as taxable income.
• In other words, the income is subject to taxation by the government.
• In general, it includes some or all elements of income before costs and other deductions are deducted.
• Income, costs, and other deductions differ depending on the country or system.
• Many systems stipulate that certain types of income are not taxable (also known as non-assessable income) and that certain expenses are not deductible when calculating taxable income.
• Some systems base tax on current-period taxable income, while others base it on prior-period taxable income.

To find the current earnings and profit for one year:

Income + Installment sale = 500,000 + 25,000 = $525,000

Income taxes + tax-exempt income = 170,000 + 1000 = $171,000

525,000 - 171,000 = $354,000

Therefore, the corporation's current earnings and profits for year one would be (A) $354,000.

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Complete question:

Grand River Corporation reported taxable income of $500,000 in year 1 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meal and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for year 1 would be:

A) $354,000.

B) $524,000.

C) $500,000.

D) $331,000.