Loon, Inc. reported taxable income of $600,000 in 20X3 and paid federal income taxes of $202,000. Not included in the company's computation of taxable income is tax-exempt interest of $30,000, disallowed meals and entertainment expenses of $15,000, and disallowed expenses related to the tax-exempt income of $4,000. Loon deducted depreciation of $200,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $80,000. Compute the company's current E&P for 20X3.
What will be an ideal response?
$529,000
$600,000 + $30,000 tax-exempt interest + $120,000 excess depreciation ? $202,000 taxes ? $15,000 M&E ? $4,000 disallowed expenses = $529,000.
| Taxable income | $ | 600,000 | |
| Add: | |||
| Tax-exempt interest | 30,000 | ||
| Excess of regular tax deprecation over E&P depreciation | 120,000 | ||
| Subtract: | |||
| Federal income taxes | (202,000 | ) | |
| Nondeductible meals and entertainment | (15,000 | ) | |
| Disallowed expenses related to tax-exempt income | (4,000 | ) | |
| Current E&P | $ | 529,000 | |
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