Problem 1. Calculating E&P.

Bam Bam International, inc. (or BBI) is a corporation with three equal shareholders (each shareholder has a basis in the shares of $25,000). BBIs revenues from its first year of operations for the tax year are $500,000 and its expenses from operations are $300,000, for net earnings from operations of $200,000. In addition to BBIs income and expenses from operations, BBI had the following items of income and expense.

Section 179 Deduction $50,000

Depreciation & Bonus Depreciation $17,144 (assume initial basis of $30,000 w/ 7 year class life)

Tax Exempt Interest Income $5,000

Cash Dividend from IBM Stock $10,000 (assume BBI owns less than 1% of IBM)

Fine $2,000

A. Calculate BBIs taxable income and BBIs federal income tax.

B. Calculate BBIs Current year Earnings and Profits.