Question

Question: Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2018, its second year of operation. Taxable income $330,000 Federal income tax liability paid 69,300 Tax-exempt interest income 5,000 Meals expense (total) 3,000 Premiums paid on key employee life insurance 3,500 Increase in cash surrender value attributable to life insurance premiums 700 Proceeds from key employee life insurance policy 130,000 Cash surrender value of life insurance policy at distribution 20,000 Excess of capital losses over capital gains 13,000 MACRS deduction 26,000 Straight-line depreciation using ADS lives 16,000 Section 179 Expense elected in 2017 25,000 Dividends received from domestic corporations (less than 20% owned) 35,000 Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2018. In addition, Sparrow sold property on installment during 2017. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2018, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Indicate whether each item (or part of the item) is "Added" to, "Deducted" from taxable income, or "No effect" when computing current E & P. Federal income tax liability paid Tax-exempt interest income Non-deductible meals and entertainment expenses Life insurance premiums paid, net of increase in cash surrender value Proceeds from life insurance policy, net of cash s

Answer 1

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