Reference no: EM132221608
Question: Jackson Corporation prepared the following book income statement for its year ended December 31, 2018:
Sales $950,000
Minus: Cost of goods sold (450,000)
Gross profit $500,000
Plus: Dividends received on Invest Corporation stock $ 3,000
Gain on sale of Invest Corporation stock 30,000
Total dividends and gain 33,000
Minus: Depreciation ($7,500 + $52,000) $ 59,500
Bad debt expense 22,000
Other operating expenses 105,500
Loss on sale of Equipment 1 70,000
Total expenses and loss (257,000)
Net income per books before taxes $276,000
Minus: Federal income tax expense (90,000)
Net income per books $186,000
Information on equipment depreciation and sale:
Equipment 1:
• Acquired March 3, 2016 for $180,000
• For books: 12-year life; straight-line depreciation
• Sold February 17, 2018 for $80,000
Sales price $ 80,000
Cost $180,000
Minus: Depreciation for 2016 (½ year) $ 7,500
Depreciation for 2017 ($180,000/12) 15,000
Depreciation for 2018 (½ 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)
• 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, 2017 for $624,000
• For books: 12-year life; straight-line depreciation
• Book depreciation in 2018: $624,000/12 = $52,000
• For tax: Seven-year MACRS property for which the corporation made the Sec. 179 election in 2017 but elected out of bonus depreciation.
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 from last year.
• Jackson purchased the Invest Corporation stock (less than 20% owned) on June 21, 2016, for $25,000 and sold the stock on December 21, 2018, for $55,000.
Required: a. For 2018, calculate Jackson's tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.
b. For 2018, calculate Jackson's taxable income and tax liability.
c. Prepare a schedule reconciling net income per books to taxable income before special deductions (Form 1120, line 28).