This problem is from Federal income taxation of Corporations and Shareholder 7th edition (James S. Eustice) 5A (9)
The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply). Use a 34% corporate tax rate in this problem. X has always been an S corporation. During the current year, X accrued income and expenses as follows:
Gross income from Busines $500
Dividends on AT&T stock (consider &243) $100
Interest on municipal bonds (&103) 100
Capital gain 100
Total $800
Deductible &162(a)(1) business expense 430
Noncaptial expenses not deductible under &162(e) 90
Capital losses (see &1211 (a) 146
Total 66
Net $134
Suppose that Y is an individual and that X has always been an S Corporation.
a) What is X's E&P?
For the answer can you please explain how do you get the result.
This problem is from Federal income taxation of Corporations and Shareholder 7th edition (James S. Eustice) 5A (9)
The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply). Use a 34% corporate tax rate in this problem. X has always been an S corporation. During the current year, X accrued income and expenses as follows:
Gross income from Busines $500
Dividends on AT&T stock (consider &243) $100
Interest on municipal bonds (&103) 100
Capital gain 100
Total $800
Deductible &162(a)(1) business expense 430
Noncaptial expenses not deductible under &162(e) 90
Capital losses (see &1211 (a) 146
Total 66
Net $134
Suppose that Y is an individual and that X has always been an S Corporation.
a) What is X's E&P?
For the answer can you please explain how do you get the result.
Related questions
PROVIDE ALL CALCULATIONS USED
Rossman Corporation holds 75 percent of the common stock of Schmid Distributors Inc., purchased on December 31, 20X1, for $2,340,000. At the date of acquisition, Schmid reported common stock with a par value of $1,000,000, additional paid-in capital of $1,350,000, and retained earnings of $620,000. The fair value of the noncontrolling interest at acquisition was $780,000. The differential at acquisition was attributable to the following items:
| Inventory (sold in 20X2) | $30,000 |
| Land | 56,000 |
| Goodwill | 64,000 |
| Total Differential | $150,000 |
During 20X2, Rossman sold a plot of land that it had purchased several years before to Schmid at a gain of $23,000; Schmid continues to hold the land. In 20X6, Rossman and Schmid entered into a five-year contract under which Rossman provides management consulting services to Schmid on a continuing basis; Schmid pays Rossman a fixed fee of $80,000 per year for these services. At December 31, 20X8, Schmid owed Rossman $20,000 as the final 20X8 quarterly payment under the contract.
On January 2, 20X8, Rossman paid $250,000 to Schmid to purchase equipment that Schmid was then carrying at $290,000. Schmid had purchased that equipment on December 27, 20X2, for $435,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired.
At December 31, 20X8, the trial balances for Rossman and Schmid appeared as follows:
............................................................Rossman Corp......................................... Schmid Distributors Inc.
| Item | Debit | Credit | Debit | Credit |
| Cash | 50,700 | 38,000 | ||
| Current Receivables | 101,800 | 89,400 | ||
| Inventory | 286,000 | 218,900 | ||
| Investment in Schmid Stock | 2,974,000 | |||
| Land | 400,000 | 1,200,000 | ||
| Buildings/Equipment | 2,400,000 | 2,990,000 | ||
| Cost of Goods Sold | 2,193,000 | 525,000 | ||
| Depreciation & Amortization | 202,000 | 88,000 | ||
| Other Expenses | 1,381,000 | 227,000 | ||
| Dividends Declared | 50,000 | 20,000 | ||
| Accumulated Depreciation | 1,105,000 | 420,000 | ||
| Current Payables | 86,200 | 76,300 | ||
| Bonds Payable | 1,000,000 | 200,000 | ||
| Common Stock | 100,000 | 1,000,000 | ||
| Additional Paid-in Capital | 1,272,000 | 1,350,000 | ||
| Retained Earnings, Jan 1 | 1,474,800 | 1,400,000 | ||
| Sales | 4,801,000 | 985,000 | ||
| Other Income or Loss | 90,000 | |||
| Income from Schmid | 109,500 | |||
| Total | $10,038,500 | $10,038,500 | $5,431,300 | $5,431,300 |
As of December 31, 20X8, Schmid had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Rossman uses the fully adjusted equity method to account for its investment in Schmid.
REQUIRED (Provide all calculations used)
a. Compute the amount of the differential as of January 1, 20X8.
b. Verify the balance in Rossmanâs Investment in Schmid Stock account as of December 31, 20X8.
c. Present all elimination entries that would appear in a three-part consolidation worksheet as of December 31, 20X8.
d. Prepare and complete a three-part worksheet for the preparation of consolidated financial statement for 20X8.
