Determine the tax loss on the sale, Corporate Finance

Jackson Corporation prepared the following 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 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, 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, calculate 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.

 

Posted Date: 3/29/2013 5:37:37 AM | Location : United States







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