Jackson Corporation prepared the following book income statement for its year en
ID: 2350005 • Letter: J
Question
Jackson Corporation prepared the following book income statement for 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: 12-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 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 2010: $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, 2010, for $55,000.
• Jackson Corporation has qualified production activities income of $120,000, and the applicable percentage is 9%.
Required:
calculate the tax depreciation deduction for equipment 1 & 2.
Explanation / Answer
Equipment number 1: From the MACRS table, 7-year recovery, 2nd year the depreciation rate is 24.49. Since it was sold that year, it would be 180,000*.2449*.50 = 22041. (allowed half in the year of disposition) Equipment number 2: From the MACRS table, 7-year recovery, 1st year,the depeciation rate is 14.49. So the depreciation is 384,000*.1449 = 55641.60
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