Final answer:
Abbot Corporation's current earnings and profits (E&P) for 20X3 is calculated by adjusting the net operating loss with certain non-E&P deductions; the corrected E&P for 20X3 would be $(584,400).
Step-by-step explanation:
The student asked about calculating the current earnings and profits (E&P) for Abbot Corporation in 20X3, after reporting a net operating loss. To determine the E&P, certain adjustments must be made to the taxable income.
Since the net operating loss is $440,000, we begin there. We need to add back the expenses and deductions that reduced taxable income but are not applicable to E&P. The difference between regular depreciation ($140,000) and E&P depreciation ($60,000) is $80,000, so we add this to the loss. We also add back the first-year expensing under §179 of $54,000, and the dividends received deduction of $10,400, because these are not subtracted when calculating E&P.
Therefore, the calculation is as follows:
- Net Operating Loss: $440,000
- Add: Difference in depreciation ($140,000 - $60,000): $80,000
- Add: §179 Expensing: $54,000
- Add: Dividends received deduction: $10,400
The total adjustments amount to $144,400. Adding this to the net operating loss, we get $440,000 + $144,400 = $584,400. Thus, the current E&P for 20X3 is $(584,400).