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







Related Discussions:- Determine the tax loss on the sale, Assignment Help, Ask Question on Determine the tax loss on the sale, Get Answer, Expert's Help, Determine the tax loss on the sale Discussions

Write discussion on Determine the tax loss on the sale
Your posts are moderated
Related Questions
Do mergers encourage the formation of new banks? A: Yes. The rise in the number of new banks in the second half of the 1990s coincides with a surge in merger activity in the

If the cost of debt is the lowest choice among financing options, would increasing our percentage of debt reduce our cost of capital?#

a) Cookie Monster Inc. (a $15 billion snack food company) is considering acquiring Keebler Elves but is unsure of how much is should be willing to pay for the target firm.  At the

As the company''s sales and earnings increased, so did the demand for capital. The firm''s needs included inventory as well as additional space to house the inventory, computer fac

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli

Hello, can you help me to calculate the Discount rate and Internal Rate of Return?

differentiate between allocative efficiency and pricing efficiency.

#queM&A E-III Corp. is investigating the possible acquisition of Silicon Inc. Assume that both firms have no debt outstanding. E-III Corp. Silicon Inc. Pre-announcement stock price

how can i rank a project when there are conflict between IRR & NPV

Roman Roads has a number of capital projects available for investment this year but has access to a limited amount of capital.  Specifically, the firm has arranged to secure a $25