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

$250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a public library.) Cardinal borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan.

Excluding these three items, Cardinal’s taxable income is $500,000, on which it paid Federal income tax of $131,250 during the year.

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

b. What is Cardinal’s accumulated E & P at the end of the tax year if its beginning E & P balance was $150,000?