What effect do the following transactions have on the calculation of Young Corporation's

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What effect do the following transactions have on the calculation of Young Corporation's current E&P? Assume that the starting point for the calculation is Young's taxable income for the current year.

a.
The corporation earns tax-exempt interest income of $10,000.
b.
Taxable income includes a $10,000 dividend and is reduced by a $7,000 dividends-received deduction.
c.
A $5,000 capital loss carryover from the preceding tax year offsets $5,000 of capital gains.
d.
The corporation accrued federal income taxes of $25,280.
e.
The corporation took a U.S. production activities deduction of $3,000.
a. The corporation earns tax-exempt interest income of $10,000.



A.

Tax-exempt interest has no effect on the current E&P.



B.

The tax-exempt interest is deducted from taxable income to compute current E&P.



C.

The tax-exempt interest is added to taxable income to compute current E&P.

 



D.

None of the above.

b. Taxable income includes a $10,000 dividend and is reduced by a $7,000 dividends-received deduction.



A.

The dividends-received deduction is added to taxable income.

 



B.

The dividends-received deduction reduces capital gains.



C.

The dividends-received deduction reduces taxable income.



D.

None of the above.

 

c. A $5,000 capital loss carryover from the preceding tax year offsets $5,000 of capital gains.



A.

The capital loss carryover has no effect on the E&P.



B.

The capital loss carryover is added to taxable income.

 



C.

The capital loss carryover reduces taxable income.



D.

None of the above.

d. The corporation accrued federal income taxes of $25,280.



A.

The federal income taxes are deducted from accumulated E&P.



B.

The federal income taxes are deducted from taxable income.

 



C.

Only 20% of the federal income taxes are deducted from taxable income.



D.

The federal income taxes increase taxable income.

e. The corporation took a U.S. production activities deduction of $3,000.



A.

The U.S. production activities deduction is actually a tax credit.



B.

The U.S. production activities deduction is only allowable if the corporation suffered losses in the current year.



C.

The U.S. production activities deduction is added to taxable income.

 



D.

The U.S. production activities deduction is deducted from taxable income.

 
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