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Cardinal Corporation, 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, Cardinal's 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 $131,250 during the year. Click here for the Dividend Received Deduction Table. a. After these three items are taken into account, Cardinal Corporation's taxable income is $ X. Feedback Check My Work The Code does not explicitly define the term earnings and profits. Instead, a series of adjustments to taxable income are identified to provide a measure of the corporation's economic income. Both cash basis and accrual basis corporations use the same approach when determining E & P. b. Cardinal Corporation's accumulated E & P at the start of next year is $ X. At the start of the current year, Blue Corporation (a calendar year taxpayer) has accumulated E & P of $370,000. Blue's current E & Pis $222,000, and at the end of the year, it distributes $740,000 ($370,000 each) to its equal shareholders, Pam and Jon. Pam's stock basis is $51,800; Jon's stock basis is $207,200. How is the distribution treated for tax purposes? If an amount is zero, enter "O". Pam has the following: Dividend income: $ 296,000 Capital gain: $ Stock basis after distribution: $ Jon has the following: Dividend income: $ 296,000 Capital gain: Stock basis after distribution: $

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