<u>Solution and Explanation:</u>
Taxable income $330,000
Federal income tax liability paid (69,300 )
Tax-exempt interest income 5,000
Disallowed portion of meals and entertainment expenses (1,500)
Life insurance premiums paid, net of increase
In cash surrender value (3,500 minus 700) = (2,800)
Proceeds from life insurance policy, net cash
Surrender value (130,000 minus 20,000) 110,000
Excess capital losses (13,000)
Expenses (26,000 minus 16,000) 10,000
Allowable portion of 2013 SS 179
Expenses (20% multiply with 25,000) (5,000)
Dividends received deduction (70% multiply with $35,000) 24,500
LIFO recapture adjustment 10,000
Installment sale gain (3,000)
$394,900