Finance Question - Corporate Earnings, Distributions, Redemptions and Liquidations

Transaction

Taxable Income Increase (Decrease)

E&P Increase

1.0 Realized gain of $50,000 on involuntary

conversion of building ($30,000 of gain is recognized)

2. Mining exploration costs incurred on June 1 of

the current year; $24,000 is deductible from

current-year taxable income

3. Sale of equipment to unrelated third party

for $300,000; basis is $200,000 (no election out

of installment method; no payments are received

in the current year).

4. Dividends of $35,000 received from 5%-owned

corporation, together with dividends received

deduction (assume taxable income limit does not apply).

5. Domestic production activities deduction of

$55,000 is claimed in current year.

6. Section 179 expense deduction of $45,000 in current year.

7. Impact of current-year section 179 expense

deduction for previous item in succeeding year.

8. MACRS depreciation of $80,000. ADS depreciation

would have been $88,000.

9. Federal income taxes paid in the current year of $52,000