Question

Au Sable Corporation reported taxable income of $800,000 in 2010 and paid federal income taxes of $272,000. Not included in the computation was a disallowed penalty of $25,000, life insurance proceeds of $100,000, and an income tax refund from 2009 of $50,000. Au Sable is an accrual basis taxpayer. The corporation's current earnings and profits for 2010 would be:

a) $653,000
b) $553,000
c) $603,000
d) $875,000

Answer 1

The current earnings and profits for Au Sable Corporation in 2010 would be $653,000.

Step-by-step explanation:

The current earnings and profits for Au Sable Corporation in 2010 would be $653,000. To calculate the current earnings and profits, we start with the taxable income of $800,000 and adjust it for certain items that are not included in the computation of taxable income. This includes the disallowed penalty of $25,000 and the life insurance proceeds of $100,000, which would reduce the taxable income to $675,000. However, the income tax refund from 2009 of $50,000 is not included in the taxable income calculation, so it does not affect the current earnings and profits. Therefore, the current earnings and profits would be $653,000 ($675,000 - $22,000).