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 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, 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:

a. 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.

b. For 2020, 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).

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Sales $950,000 (450,000) Minus: Cost of goods sold Gross profit Plus: $500,000 Dividends received on Invest Corporation stock Gain on sale of Invest Corporation stock $ 3,000 30,000 Total dividends and gain 33,000 Minus: Depreciation ($7,500 + $16,700) 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 $ 24,200 22,000 105,500 70,000 (221,700) $311,300 (65,100) Net income per books $246,200