LO.2 Indigo Corporation, a calendar year taxpayer, receives dividend income of

$300,000 from a corporation in which it holds a 10% interest. Indigo also receives interest income of $45,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a public library.) Indigo borrowed funds to purchase the municipal bonds and pays $25,000 of interest on the loan. Excluding these items, Indigo’s taxable income is $600,000.

a. What is Indigo’s taxable income after these items are taken into account?

b. What is Indigo’s accumulated E & P at the start of the next tax year, if its beginning balance this year is $200,000?