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Corporate Tax:

Jackson Corporation prepared the given 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 1                           55,000

Total expenses and loss                                 (221,500)
Net income per books before taxes                $178,500
Minus: Federal income tax expense                (70,000)
Net income per books                                      $108,500

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:

• Under the direct prepare off 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, 2008, for $25,000 and sold the stock on December 22, 2011, for $55,000.

• Jackson Corporation has qualified production activities income of $120,000, and the applicable percentage is 9%.

Required:

a) For 2011, find out Jackson’s tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.

b) Prepare a schedule reconciling net income per books to taxable income before special deductions (Form 1120, line 28).

c) Ignore first-year bonus depreciation.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M9272

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