And if you recall from the concepts discussion,

the installment method is not allowed for calculating E&P.

So we need to add this $12,000 of deferred gain back.

In other words, it is economically available for distribution to shareholders.

So we start with taxable income.

We make these adjustments and we find out that current E&P for

this particular entity Sunchaser is $441,000.

And that's all there is to it. Sunchaser Shakery Corporation,

an accrual basis taxpayer had E&P of $74,000 last year.

The following information pertained to this tax year.

Taxable income on the tax return, $304,000.

Charitable contributions in excess of 10 percent limitation, $9,000.

Interest paid for tax-exempt bonds, $5,000.

Tax-exempt interest received, $8,000.

Federal income tax, $97,000 and MACRS depreciation in excess of ADS depreciation, $3,500.

And our goal is to determine E&P.

So to do this, let's start with E&P from the prior year,

so that we ultimately end up with an overall estimate of

current and accumulated E&P for this particular tax year.

So E&P from last year,

we are told a $74,000.

Now let's calculate current E&P.

So we start with,

as we always do, taxable income,

as sort of our first performance measure and then we'll make adjustments to

account for the things that are reflected and not reflected in taxable income,

but it affect the economic ability to pay dividends.

So taxable income of $304,000,

is our starting point and now we need to make those adjustments to that.

So, we'll start by looking at

all the positive adjustments and then let's work through the negative adjustments.

So the first positive adjustment we need to make is tax-exempt interest.

As before, this is interest that is available to

the firm for distribution to shareholders but is not a tax,

so it's not reflected in this taxable income number of $8,000.

And so, we'll just write a note on the side for later that this is income,

but not in taxable income.

So that when you go back and look at this, you know why.

Okay, the other positive adjustment we need to make is for excess depreciation.