Greenwich Corporation reported a net operating loss of $800,000 in year 1.Not included in the year 1 taxable income computation were a disallowed fine of $50,000, life insurance proceeds of $500,000, and a current-year charitable contribution of $10,000 that will be carried forward to year 2.The corporation's current earnings and profits for year 1 would be:
A)$(250,000).
B)$(260,000).
C)$(300,000).
D)$(360,000).

Question

Quizplus · Accepted Answer

To calculate the current earnings and profits (E&P) for year 1, start with the net operating loss of $800,000. Then, adjust for items not included in the taxable income computation: add back the disallowed fine of $50,000 (since it's an expense that reduced taxable income but is not deductible for E&P purposes), add the life insurance proceeds of $500,000 (since it's income that was not included in taxable income but is includable for E&P purposes), and do not adjust for the charitable contribution of $10,000 (since it's an expense that will be carried forward and does not impact current year E&P). Therefore, the calculation is: -$800,000 + $50,000 + $500,000 = -$250,000. However, the correct answer is not listed in the explanation provided, indicating a mistake in the calculation or interpretation of the options. The correct approach to find the answer listed as correct (D) would involve identifying an error in the explanation process or in the interpretation of the tax effects on E&P. Given the options and the explanation, there seems to be a misunderstanding in how the adjustments are applied or an error in the initial explanation.

Greenwich Corporation Reported a Net Operating Loss of $800,000 in Year