Question

Abbot Corporation reported a net operating loss of $440,000 in 20X3, which the corporation elected to carryforward to 20X4. Included in the computation of the taxable loss was regular depreciation of $140,000 (E&P depreciation is $60,000), first year expensing under §179 of $54,000, and a dividends received deduction of $10,400. The corporation's current earnings and profits for 20X3 would be:a. $(579,000)
b. $(490,000)
c. $(271,900)
d. $(319,100)

Answer 1

Answer:

c. $(271,900)

Explanation:

Given that:

Operating loss = $490000,

regular depreciation = $190,000,

E&P depreciation = $30,000,

first year expensing under §179 = $59,000,

Dividends deduction = $10900

The first year expensing under §179 must be capitalized and amortized over 5 years  that is $11800 per year ($54000/5)

The earnings and profit for 20X3 = Operating loss - (Regular depreciation - E&P depreciation) - (First year expensing - expensing per year) - Dividends deduction.

The earnings and profit for 20X3 = $490000 - ($190000 - $30000) - ($59000 - $11800) - $10900 = $490000 - $160000 - $47200 - $10900 = $271900