Reference no: EM133072932
Jackson Corporation prepared the following book income statement for its year ended December 31, 2020:
Information on equipment depreciation and sale:
Equipment 1:
Acquired March 3, 2018 for $180,000
For books: 12-year life; straight-line depreciation
Sold February 17, 2020 for $80,000
For tax: Seven-year MACRS property for which the corporation made no Sec. 179 election in the acquisition year and elected out of bonus depreciation.
Equipment 2:
Acquired February 16, 2020 for $334,000
For books: 10-year life; straight-line depreciation (½ year taken in first year)
Book depreciation in 2020:
$334,000/10×0.5=$16,700
For tax: Seven-year MACRS property for which the corporation claimed 100% bonus depreciation for the entire cost.
Other information:
Under the direct writeoff method, Jackson deducts $15,000 of bad debts for tax purposes.
Jackson has a $40,000 NOL carryover and a $6,000 capital loss carryover, both incurred last year.
Jackson purchased the Invest Corporation stock (less than 20% owned) on June 21, 2018, for $25,000 and sold the stock on December 21, 2020, for $55,000.
Required:
For 2020, calculate Jackson's tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.
For 2020, calculate Jackson's taxable income and tax liability.
A schedule reconciling net income per books to taxable income before special deductions (Form 1120, line 28)
Sales = 950,000
minus: Cost of goods (450,000)
Gross profit= 3000
plus: gain of sales invest
Corp stock 30,000 =33,000
Minus: Depreciation 24,000
Bad debt expenses 22,000
other operating operating expenses 105,000
loss on sale of equipment 70,000
Total expenses and loss (221,700)
net income per books before taxes 311,300
Minus: Federal income tax expense (65,1000)
Net income per books 246,200
Sales price 80,000
Cost 180,000
Minus : Depreciation for 2018(1/2 year) 7,500
Depreciation for 2019(180,000/12) 15,000
Depreciation for 2020 (1/2 year) 7,500
Total book depreciation = (30,000)
Book value at time of sale (150,000)
Book loss on sale of Equipment 1 (70,000)