using this excel sheet to guide you

take as much time as you need it isnt due till sunday

Calculate the current earnings and profits (E&P) of Delta Corporation based on the following data: Delta Corporation is a calendar year, accrual basis taxpayer. Delta was established in 2019 and has $200,000 in accumulated E&P at the beginning of the 2020 tax year. The following transactions occurred in 2020: Taxable income Federal income tax liability paid Tax-exempt interest income Business meals expense (total) Premiums paid on key employee life insurance Proceeds from key employee life insurance policy Excess of capital losses over capital gains MACRS Depreciation Straight-line depreciation using ADS lives Section 179 expense in 2019 (PY) Dividends received from domestic corporations (less than 20% owned) 330,000 69,300 5,000 3,000 3,500 130,000 13,000 26,000 16,000 25,000 35,000 1. What is the amount of Current Earnings and Profits? 2. Delta distributed $400,000 to its sole shareholder, Mu, on December 31, 2020. Mu's tax basis in his Delta stock was $75,000 before the distribution. a. How much of the distribution is treated as a dividend? b. What is Mu's tax basis in Delta stock after the distribution? c. What is Delta's balance in accumulated E&P as of January 1 of the following year? 3. What if the beginning accumulated E&P was a deficit of ($200,000), but everything else was the same? a. How much of the $400,000 distribution is treated as a dividend? b. What is Mu's tax basis in Delta stock after the distribution? c. What is Delta's balance in accumulated E&P as of January 1 of the following year? C D E 0 0 1 Template for Computing Current Earnings and Profits 2 3 Taxable income (Net Operating Loss) 4 Add: Exclusions from Taxable income 5 Tax-exempt bond interest 6 Life insurance proceeds 7 Federal tax refunds (if a cash-method taxpayer) 8 Increase in cash surrender value of corporate-owned life insurance policy 9 Add: Deductions Allowed for Tax Purposes but Not for E&P 10 Dividend-received deduction 11 NOL deduction 12 Net capital loss carryforwards 13 Contribution carryforwards 14 Organizational expenditures 15 Subtract: Deductions Allowed for E&P Purposes but Not for Tax Purposes 16 Federal income taxes paid or accrued 17 Expenses of earning tax-exempt income 18 Current-year charitable contributions in excess of the taxable income limitation 19 Nondeductible premiums on life insurance policies 20 Current-year net capital loss 21 Penalties and fines 22 Nondeductible portion of meal expense 23 Entertainment expenses 24 Disallowed lobbying expenses, dues, and political contributions 25 Decrease in cash surrender value of corporate-owned life insurance policy 26 Disallowed business interest expense 0 Add or 27. 0 Subtract Timing Differences Due to Separate Accounting Methods for Taxable Income and E&P Installment method. Add deferred gain under installment method in year of 28 sale and subtract recognized gain in subsequent years Depreciation. Compare taxable income depreciation to E&P depreciation (other than $179 expense) under regular tax rules to E&P depreciation (bonus depreciation is not allowed). Add back difference if taxable icome depreciation exceeds E&P depreciation. Subtract difference if E&P 29 depreciation exceeds taxable income depreciation for the year. 5179 expense. Immediately deductible for taxable income purposes. Deductible over five years for E&P purposes. Add back in year of 5179 30 expense but subtract in subsequent years. CITA-LEFON Template Ready 3 4 5 8 Entertainment expenses Disallowed lobbying expenses, dues, and political contributions Decrease in cash surrender value of corporate-owned life insurance policy Disallowed business interest expense Add or Subtract Timing Differences Due to Separate Accounting Methods for Taxable 7: Income and E&P Installment method. Add deferred gain under installment method in year of sale and subtract recognized gain in subsequent years Depreciation. Compare taxable income depreciation to E&P depreciation (other than $179 expense) under regular tax rules to E&P depreciation (bonus depreciation is not allowed). Add back difference if taxable icome depreciation exceeds E&P depreciation. Subtract difference if E&P depreciation exceeds taxable income depreciation for the year. $179 expense. Immediately deductible for taxable income purposes. Deductible over five years for E&P purposes. Add back in year of $179 0 expense but subtract in subsequent years. Inventory. If LIFO is used for tax purposes, FIFO must be used for E&P 1 calculations. Gain or loss on sale of depreciable assets. Subtract greater taxable gain (lesser taxable loss) due to lower asset basis for taxable income purposes than for E&P purposes. This is a reversal of the depreciation deduction 2 adjustment. Long-term contracts. Percentage completion method is required for E&P. Compare the income recognized under both methods. Add back if more income is recognized under the completed contract method; subtract if 33 more icome is recognized under the precentage completion method. Depletion. Must use the cost depletion method for E&P purposes. If using percentage depletion for taxable income, add back the difference if percentage depletion exceeds cost depletion for the year. Othrwise, 34 subtract the excess of cost depletion over percentage depletion for the year. 35 Equals: Current Earnings and Profits Template Ready