Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for 20X3 would be: A. $524,000B. $500,000C. $354,000D. $331,000

The correct answer is C that is $354,000

Explanation:

The present earnings and the profit for the year 20X3 of the Corporation is computed as:

Present earnings and the profit for the year 20X3 of the Corporation = Taxable Income - Federal income tax - Entertainment expense + Deferred gain on sale of installment + Tax exempt income

Where

Taxable Income is $500,000

Federal income tax is $17,000

Entertainment expense is $2,000

Deferred gain on sale of installment is $25,000

Tax exempt income is $1,000

Putting the values in the above formula:

= $500,000 - $170,000 - $2,000 + $25,000 + $1,000

= $354,000.