Upon inquiry about the financials we learned book depreciation was 200,000 while tax depreciation was 500,000! We believe this book depreciation number is appropriate for E & P purposes! We also learned GBC owned 10% of the stock of PikeCreekCorp which paid GBC a dividend of 100,000.  Thus a 50% DRD of 50,000 had been taken.   GBC also invested in tax free bonds which earned $50,000.  This of course were not included in taxable income.  GBC had paid penalties - not deducted - of 40,000. Meals and entertainment of 40,000 were incurred (assume NONE were deductible!). Fines of $20,000 were paid by GBC for bribing a local official.  GBC had donated 500,000 to local charities, but only 250,000 of a deduction was taken. A net operating loss of $300,000 was claimed - carried forward from the tax return filed 3 years ago.

 

Please compute GBC's Earnings and Profits here. SHOW your work.