Jackson Corporation prepared the following book income statement for its year ended December 31, 2017:

Information on equipment depreciation and sale:

Equipment 1:

€¢ Acquired March 3, 2015 for $180,000

€¢ For books: 12-year life; straight-line depreciation

€¢ Sold February 17, 2017 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, 2016 for $624,000

€¢ For books: 12-year life; straight-line depreciation

€¢ Book depreciation in 2017: $624,000/12 = $52,000

€¢ For tax: Seven-year MACRS property for which the corporation made the Sec. 179 election in 2016 but elected out of bonus depreciation.

Other information:

€¢ Under the direct write-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, 2015, for $25,000 and sold the stock on December 22, 2017, for $55,000.

€¢ Jackson Corporation has qualified production activities income of $120,000.

Required:

a. For 2017, 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 2017, 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).

Transcribed Image Text:

Sales Minus: Cost of goods sold Gross profit Plus: $950,000 (450,000) $500,000 $ 3,000 30,000 Dividends received on Invest Corporation stock Gain on sale of Invest Corporation stock Total dividends and gain Minus: Depreciation ($7,500 + $52,000) Bad debt expense Other operating expenses Loss on sale of Equipment 1 Total expenses and loss Net income per books before taxes Minus: Federal income tax expense 33,000 $ 59,500 22,000 105,500 70,000 (257,000) $276,000 (90,000) $186,000 Net income per books Sales price Cost Minus: Depreciation for 2015 (% year) Depreciation for 2016 ($180,000/12) Depreciation for 2017 (% year) Total book depreciation Book value at time of sale Book loss on sale of Equipment 1 $ 80,000 $180,000 $ 7,500 15,000 7,500 (30,000) (150,000) $(70,000)