Chapter 5, Problem 27-Question

Sparrow Corporation ( a calendar year, accrual basis taxpayer) had the follows transactions in 2015, its second year of operation.

Taxable income $330,000

Federal income tax liability paid 112,000

Tax-exempt interest income 5,000

Meal 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 2014 25,000

Dividends received from domestic corporation (less than 20% owned) 25,000

Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2015. In addition, Sparrow sold property on installment during 2014. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2015, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrows current E & P.