Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2023, its second year of operation: Taxable income $330,000 Federal income tax liability paid 69,300 Tax-exempt interest income 5,000 Meals expense (total) 3,000 Premiums paid on key employee life insurance 3,500 Increase in cash surrender value attributable to life insurance premiums 700 Proceeds from key employee life insurance policy 130,000 Cash surrender value of life insurance policy at distribution 20,000 Excess of capital losses over capital gains 13,000 MACRS deduction 26,000 Straight-line depreciation using ADS lives 16,000 Section 179 expense elected during 2022 25,000 Dividends received from domestic corporations (less than 20% owned) 35,000     Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2023. In addition, Sparrow sold property on installment during 2022. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2023, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Use the variables above to Compute Sparrow’s current E & P.

To compute Sparrow Corporation's current Earnings and Profits (E&P) for 2023, we need to start with the taxable income and make adjustments for various items that affect E&P. Here’s a step-by-step breakdown: 1. **Start with Taxable Income:** - Taxable Income: $330,000 2. **Add Tax-Exempt Income:** - Tax-exempt interest income: $5,000 - Adjusted E&P: $330,000 + $5,000 = $335,000 3. **Adjust for Non-Deductible Expenses:** - Meals expense (50% deductible for tax purposes, but 100% for E&P): $3,000 * 50% = $1,500 - Premiums paid on key employee life insurance (not deductible for E&P): $3,500 - Increase in cash surrender value of life insurance (not included in taxable income but reduces E&P): $700 - Excess of capital losses over capital gains (not deductible for E&P): $13,000 - Adjusted E&P: $335,000 - $1,500 - $3,500 - $700 - $13,000 = $316,300 4. **Adjust for Depreciation Differences:** - MACRS deduction: $26,000 - Straight-line depreciation using ADS lives: $16,000 - Difference

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