Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2014, its second year of operation.
Taxable income ......................... $330,000
Federal income tax liability paid ................. 112,000
Tax-exempt interest income .................... 5,000
Meals and entertainment expenses (total) ............... 3,000
Premiums paid on key employee life insurance ........... 3,500
Increase in cash surrender value attributable to life insurance premiums ... 700
Proceeds from key employee life insurance policy .......... 130,000
Cash surrender value of life insurance policy at distribution ...... 20,000
Excess of capital losses over capital gains ............. 13,000
MACRS deduction ...................... 26,000
Straight-line depreciation using ADS lives ............. 16,000
Section 179 expense elected during 2013 .............. 100,000
Dividends received from domestic corporations (less than 20% owned) ... 25,000
• Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2014.
• Sparrow sold some property on installments during 2013. The property was sold for $40,000 and had an adjusted basis then of $32,000. During 2014, Sparrow received a $15,000 payment on the installment sale.