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    Redbird Corporation Taxable Income and E&P Calcluation

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    Redbird Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds 10% interest. Redbird also received interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a library). Redbird borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding the items noted above, Redbird's taxable income is $500,000.

    A) What is Redbird Corporation's taxable income after dividend income, interest from the municipal bonds, and interest paid on the loan have been taken into account?

    B) What is Redbird Corporation's accumulated E&P at the end of the year if the beginning balance is $150,000?

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    Solution Preview

    Dividend income 250,000
    Dividend received deduction(250,000*70%) (175,000)
    Other taxable income 500,000
    Total taxable income ...

    Solution Summary

    The solution determines what Redbird Corp's taxable income is after dividend income, interest, and interest paid on the loan. It also calculates the accumulated E&P at the end of the year.