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Jackson Corporation prepared the following book income statementfor its year ended December 31, 2010:
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 Corporations stock 30,000
Total dividends and gain $33,000
Minus: Depreciation ($7,500 + $32,000) $39,500
Bad debt expense 22,000
Other operating expenses 105,500
Loss on sale of Equipment 1 70,000
Total expenses and loss (237,000)
Net income per books before taxes $196,000
Minus: Federal income tax expense (60,000)
Net income per books $136,000
Information on equipment depreciation and sale:
Equipment 1:
• Acquired March 3, 2008 for $180,000
• For books: year life; straight-line depreciation
• Sold February 17, 2009 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) 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 madeno Sec. 179 election in the acquisition year end elected out ofbonus depreciation.
Equipment 2:
• Acquired February 16, 2009 for $384,000
• For books: year life; straight-line depreciation
• Book depreciation in 2010: $384,000/12 = $32,000
• For tax: Seven-year MACRS property for which the corporation madethe Sec. 179 election but elected out of bonus depreciation.
Other information:
• Under the direct writeoff method, Jackson deducts $15,000 of baddebts for tax purposes.
• Jackson has a $40,000 NOL carryover and a $6,000 capital losscarryover 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 December22, 2010, for $55,000.
• Jackson Corporation has qualified production activities income of$120,000, and the applicable percentage is 9%.
Required:
1. For 2013, calculate Jackson's tax depreciation deduction forEquipment 1 and 2, and determine the tax loss on sale of Equipment1.
2. For 2013, calculate Jackson's taxable income and taxliability.
3. Prepare a schedule reconciling net income per book to taxableincome before special deductions (form 1120, line 28)
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