Corporate Tax:
Jackson Corporation prepared the following book income statement for its year ended December 31, 2011:
Sales $900,000
Minus: Cost of goods sold (500,000)
Gross Profit: $400,000
Plus: Dividends received on Invest Corporations stock $3,000
Gain on sale of Invest Corporation's stock 30,000
Total dividends and gain $33,000
Minus: Depreciation ($7,500 + $32,000) $39,500
Bad debt allowance 22,000
Other operating expenses 105,500
Loss on sale of Equipment 155,000
Total expenses and loss (222,000)
Net income per books before taxes $211,000
Minus: Federal income tax expense (70,000)
Net income per books $141,000
Information on equipment depreciation and sale:
Equipment 1:
- Acquired March 3, 2008 for $180,000
- For books: 12-year life; straight-line depreciation
- Sold June 17, 2011 for $80,000
Sales price $80,000
Cost $180,000
Minus: Depreciation for 2008 (1/2 year) $7,500
Depreciation for 2009 ($180,000/12) 15,000
Depreciation for 2010 (1/2 year) 15,000
Depreciation for 2011 (1/2 year) 7,500
Total book depreciation (45,000)
Book value at time of sale (135,000)
Book loss on sale of Equipment 1 $(55,000)
- For tax: Seven-year MACRS property for which the corporation made no Sec. 179 election in the acquisition year end elected out of bonus depreciation.
Equipment 2:
- Acquired February 16, 2009 for $384,000
- For books: 12-year life; straight-line depreciation
- Book depreciation in 2011: $384,000/12 = $32,000
- For tax: Seven-year MACRS property for which the corporation made the Sec. 179 election but elected out of bonus depreciation.
Other information:
1. Under the direct writeoff method, Jackson deducts $15,000 of bad debts for tax purposes.
2. Jackson has a $40,000 NOL carryover and a $6,000 capital loss carryover from last year.
3. Jackson purchased the Invest Corporation stock (less than 20% owned) on June 21, 2008, for $25,000 and sold the stock on December 22, 2011, for $55,000.
4. Jackson Corporation has qualified production activities income of $120,000, and the applicable percentage is 9%.
Required:
1. For 2011, calculate Jackson's tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.
2. Prepare a schedule reconciling net income per books to taxable income before special deductions (Form 1120, line 28).
3. Ignore first-year bonus depreciation.