Cardinal corp, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. cardinal also receives interest income of $35,000 from municipal bonds. (the municipality used the proceeds from the bond issue to construct a library.) cardinal borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. excluding these three items, cardinals taxable income is $500,000. cardinal has $150,000 of accumulated e & p at the end of the prior year, and it paid federal income taxes of $200,000 during the year.
a. what is cardinal corporation’s taxable income after these three items are taken into account? 500,000
b. what is cardinal corporations accumulated e & p at the start of the next year?
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