Question

In determining Blue Corporation's current earnings and profits (E & P) for 2019, how should taxable income be adjusted as a result of the following transactions?
Select either "Increase", "Decrease" or "Not be affected", whichever is applicable.
a. A capital loss carryover from 2018, fully used in 2019.
b. Nondeductible meal expenses in 2019.
c. Interest on municipal bonds received in 2019.
d. Nondeductible lobbying expenses in 2019.
e. Loss on a sale between related parties in 2019.
f. Federal income tax refund received in 2019.

Answer 1

Answer: See explanation

Explanation:

Taxable income simply refers to the income that the government imposes a tax on. Taxable income should be adjusted on the following transactions as follows:

a. A capital loss carryover from 2018, fully used in 2019.

Based on the above transaction, taxable income should be increased.

b. Nondeductible meal expenses in 2019.

Based on the above transaction, taxable income should be decreased.

c. Interest on municipal bonds received in 2019.

Based on the above transaction, taxable income should be increased.

d. Nondeductible lobbying expenses in 2019.

Based on the above transaction, taxable income should be decreased.

e. Loss on a sale between related parties in 2019.

Based on the above transaction, taxable income should be decreased.

f. Federal income tax refund received in 2019.

Based on the above transaction, taxable income should be increased.