Question

Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on a current year transaction treated as an installment sale of $25,000. The corporation's current earnings and profits for 20X3 would be:

Answer 1

To calculate the current earnings and profits for Grand River Corporation in 20X3, we add back the disallowed expense, subtract the tax-exempt income, and subtract the deferred gain on the installment sale.

Step-by-step explanation:

To calculate the current earnings and profits for Grand River Corporation in 20X3, we need to make several adjustments to the taxable income. First, we add back the disallowed meals and entertainment expense of $2,000, as this is a deductible expense for tax purposes. Next, we subtract the tax-exempt income of $1,000, as this does not contribute to the taxable income.

Finally, we subtract the deferred gain on the installment sale of $25,000, as this is not recognized as income in the current year. The resulting amount is the corporation's current earnings and profits for 20X3.

So, the calculation would be as follows:

Taxable income: $500,000

Add back disallowed expense: $2,000

Subtract tax-exempt income: $1,000

Subtract deferred gain on installment sale: $25,000

Current earnings and profits for 20X3: $476,000