acc_455_syllabus.doc

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Week 3 DQ

DQ 1

Post a 200-300-word response to the following discussion question by clicking on Reply.

How does a corporation compute earnings and profits (E&P)? What income is deferred to

a later year when computing taxable income but is included in E&P in the current year?

What deductions are allowed for taxable income purposes but denied for E&P?

To compute earnings and profits at the current time and company takes the taxable income or net

operating loss and adjusts it. These adjustments come from taxes or non-taxable income.

Because earnings and profits are what the company uses to pay dividends the company would

add in tax-exempt items like life insurance proceeds and tax-exempt interest. This is added after

subtracting or adding taxable income items.

“Income deferred to a later year but included in earnings and profits are gains and losses on

property transactions” (Anderson, Pope, Kramer, 2010, p. 4-4). Also these gains can come from

installment sales in which all gain is realized. Other income and deductions are computed for

earnings and profits on percentages earned such as completions for projects and depreciation.

Some income is not allowed to be computed into earnings and profits but is used in taxable

income. The reason for this is earnings and profits are for paying dividends. Dividends received

from other companies or subsidiaries are part of this. Also included in this category are NOL

capital loss carryovers, charitable contributions and the US production activities deductions. This

deduction is a tax break not a deduction for earnings and profits.

Anderson, K. E. , Pope, T. R., & Kramer, J. L. (2010). Prentice Hall’s Federal Taxation 2010:

Corporations, Partnerships, Estates, & Trusts. Retrieved from University of Phoenix e-

campus student website.

DQ 2

Post a 200-300-word response to the following discussion question by clicking on Reply.

The corporation owns a building with a $160,000 adjusted basis and $120,000 fair market

value. The company has earnings and profits of $200,000. Is it more advantageous for the

company to sell the property and distribute the sales proceeds to its shareholders or

distribute the property to its shareholders and let them sell the property? Why? If you

were a shareholder, what would be most advantageous to you?

First that needs to be discussed is the FMV is 120,000 but the basis is 160,000. When

distributing to stockholders the amount would be 120,000 and considered the same as dividends

because the FMV is owner then the E&P of 200,000.

Next is the FMV is lower than adjusted value so the corporation would consider this a loss,

although it would not report it. ON this point the company would be better doing this because no

loss is reported. The corporation would adjust the E&P by the assets basis instead of the FMV.

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Week 3 DQ DQ 1 Post a 200-300-word response to the following discussion question by clicking on Reply. How does a corporation compute earnings and profits (E&P)? What income is deferred to a later year when computing taxable income but is included in E&P in the current year? What deductions are allowed for taxable income purposes but denied for E&P? To compute earnings and profits at the current time and company takes the taxable income or net operating loss and adjusts it. These adjustments come from taxes or non-taxable income. Because earnings and profits are what the company uses ...
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