Question 1

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Gain on installment sale in 2019 deferred until 2020.

Accepted Answer

The gain on the installment sale, although deferred for tax purposes until 2020, should be recognized in the year of the sale (2019) for purposes of calculating current Earnings and Profits (E&P). This results in an increase to E&P in 2019.

Question 2

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Meal expense not deducted in 2019 because of the 50% limitation.

Accepted Answer

The answer of Matching
Using the legend provided, classify each statement...

Question 3

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Dividends received deduction.

Accepted Answer

The dividends received deduction would increase current Earnings and Profits (E&P) because it is an item that reduces taxable income but does not reduce E&P.

Question 4

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Gain realized but not recognized in a like-kind exchange transaction in 2019.

Accepted Answer

In a like-kind exchange, gain is deferred and not recognized for tax purposes, so it does not affect current E & P.

Question 5

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Federal income tax refunds from tax paid in prior years.

Accepted Answer

Federal income tax refunds from taxes paid in prior years are considered an item of income when received. Therefore, they would increase current Earnings and Profits (E&P) when adjusting taxable income to arrive at current E&P for the year.

Question 6

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Proceeds of life insurance received upon the death of a key employee (policy had no cash surrender value).

Accepted Answer

Proceeds of life insurance received upon the death of a key employee, where the company is the beneficiary and the policy had no cash surrender value, are generally not taxable. However, for E&P calculations, these proceeds are added back to taxable income, resulting in an increase to current E&P.

Question 7

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Section 179 expense in second year following election.

Accepted Answer

Section 179 expense is a deduction that reduces taxable income, and when adjusting taxable income to arrive at current Earnings and Profits (E&P), this deduction would decrease the E&P.

Question 8

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Additional first-year (bonus) depreciation deduction claimed in 2019.

Accepted Answer

The additional first-year (bonus) depreciation deduction claimed in 2019 would increase current Earnings and Profits (E&P) because for E&P calculations, this deduction would be added back to taxable income, effectively increasing E&P.

Question 9

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Intangible drilling costs deducted currently.

Accepted Answer

Intangible drilling costs that are deducted currently for tax purposes but are not deductible for E&P calculations would increase current E&P because you would add back these expenses to taxable income to arrive at E&P.

Question 10

Which of the following statements is correct with respect to the § 338 election?

Accepted Answer

A) The parent corporation makes the § 338 election, not the subsidiary.
B) This statement is partially correct, but it does not directly relate to the § 338 election. A qualified stock purchase is a prerequisite for making a § 338 election, but it does not define the election itself.
C) This statement is correct. The parent corporation does not recognize any gain or loss as a result of the § 338 election.
D) This statement is incorrect. The subsidiary corporation recognizes both gain and loss as a result of the deemed sale of its assets.
E) This statement is incorrect as well.

Question 11

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Cash dividends distributed to shareholders in 2019.

Accepted Answer

Cash dividends distributed to shareholders decrease the current Earnings and Profits (E & P) because they represent a distribution of the company's earnings to its shareholders, reducing the amount of retained earnings.

Question 12

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Excess capital loss in year incurred.

Accepted Answer

The answer of Using the legend provided, classify each statement...

Question 13

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-State income tax paid in the current year.

Accepted Answer

State income tax paid is not deductible for federal income tax purposes. Therefore, it is added back to taxable income to arrive at current E & P.

Question 14

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Gain realized (but not recognized) on a like-kind exchange.

Accepted Answer

For E&P purposes, all gains, including those realized but not recognized under specific tax provisions like like-kind exchanges, must be accounted for. Therefore, the gain realized on a like-kind exchange, even though not recognized for taxable income purposes, will have no effect on the adjustment process when calculating current E&P for the year, as E&P calculations require the inclusion of all realized gains.

Question 15

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Loss on sale between related parties in 2019.

Accepted Answer

Loss on sale between related parties is not deductible for tax purposes, but it reduces E & P.

Question 16

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-A decrease in the LIFO recapture amount during the year.

Accepted Answer

A decrease in the LIFO recapture amount during the year will decrease current E & P.

Question 17

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Charitable contribution carryforward deducted in the current year.

Accepted Answer

Charitable contribution carryforwards deducted in the current year would increase current Earnings and Profits (E&P) because they are deductions for tax purposes but not for E&P calculations, thus reversing them adds back to E&P.

Question 18

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy) in 2019.

Accepted Answer

Premiums paid on key employee life insurance policies are generally not deductible for tax purposes, thus they decrease current Earnings and Profits (E & P).

Question 19

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Penalties paid to state government for failure to comply with state law.

Accepted Answer

Penalties paid to state government are not deductible for tax purposes, so they decrease the current Earnings and Profits (E & P).

Question 20

Matching
Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019.
-Interest received from municipal bonds in 2019.

Accepted Answer

Interest received from municipal bonds is typically tax-exempt, so it would increase current Earnings and Profits (E&P) as it is added back to taxable income.

Quiz 19: Corporations: Distributions Not in Complete Liquidation

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Gain on installment sale in 2019 deferred until 2020.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Meal expense not deducted in 2019 because of the 50% limitation.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Dividends received deduction.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Gain realized but not recognized in a like-kind exchange transaction in 2019.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Federal income tax refunds from tax paid in prior years.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Proceeds of life insurance received upon the death of a key employee (policy had no cash surrender value) .

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Section 179 expense in second year following election.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Additional first-year (bonus) depreciation deduction claimed in 2019.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Intangible drilling costs deducted currently.

Which of the following statements is correct with respect to the § 338 election?

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Cash dividends distributed to shareholders in 2019.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Excess capital loss in year incurred.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -State income tax paid in the current year.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Gain realized (but not recognized) on a like-kind exchange.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Loss on sale between related parties in 2019.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -A decrease in the LIFO recapture amount during the year.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Charitable contribution carryforward deducted in the current year.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy) in 2019.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Penalties paid to state government for failure to comply with state law.

Matching Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Interest received from municipal bonds in 2019.