McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 9

Lanco Corporation, an accrual basis corporation, reported taxable income of $1,460,000 for 2011.Included in the computation of taxable income were the following items:
MACRS depreciation of $200,000. Straight line depreciation would have been $120,000. A net capital loss carryover of $10,000 from 2010 A net operating loss carryover of $25,000 from 2010 $65,000 capital gain from the distribution of land to the company's sole shareholder (see below) Not included in the computation of taxable income were the following items:
Tax-exempt income of $5,000 Life insurance proceeds of $250,000 Excess current year charitable contribution of $2,500 (to be carried over to 2012) Tax-deferred gain of $20,000 on a like-kind exchange Federal income tax refund from 2010 of $35,000 Non-deductible life insurance premium of $3,500 Non-deductible interest expense of $1,000 on a loan used to buy tax-exempt bonds Lanco paid federal income taxes for 2011 of $496,400. The company's accumulated E P at the beginning of the year was $2,400,000.
During 2011, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:
June 30, 2011: $50,000 September 30, 2011: Parcel of land with a fair market value of $75,000. Lanco's tax basis in the land was $10,000. Lug assumed an existing mortgage on the property of $15,000.