To prepare for Project Part 2:
Revisit the assigned readings for Modules 4 and 5 from
your textbook.
In addition, revisit the lessons for Module 4 and 5 that
present important points that you need to consider before
submitting Project Part 2.
Title: Tax Planning for Corporate Taxpayers
Jackson Corporation prepared the following book income
statement for its year ended December 31, 2013:
Sales—————————————
Minus: Cost of goods sold———–
$950,000
(450,000)
Gross profit $500,000
Plus:
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 $52,000)—
Bad debt expense———————-
Other operating expenses———–
Loss on sale of Equipment 1——–
$59,500
$22,000
$105,500
$70,000
Total expenses and loss————– (257,000)
Net income per book before
taxes————————————–
$276,000
Minus:
Federal income tax expense——–
(90,000)
Net income per book$186,000
Information on equipment depreciation and sale:
Equipment 1:
Acquired March 3, 2011 for $180,000
For books: 12-year life; straight-line depreciation
Sold February 17, 2013 for $80,000
Sales price $80,000
Cost $180,000
Minus:
Depreciation for 2011 (1⁄2 year)
Depreciation for 2012
($180,000/12)
Depreciation for 2013 (1⁄2 year)
$7,500
$15,000
$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 Modified Accelerated Cost Recovery
System (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, 2012 for $624,000
• For books: 12-year life; straight-line depreciation
• Book depreciation in 2013: $624,000/12 = $52,000
• For tax: Seven-year MACRS property for which the
corporation made the Sec. 179 election in 20ation made the Sec. 179 election in 2012 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 Net Operating Loss (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, 2011, for $25,000 and sold the
stock on December 23, 2013, for $55,000.
Jackson Corporation has a qualified production activities
income of $120,000.
Tasks:
1. For 2013, calculate Jackson’s tax depreciation deduction for
Equipment 1 and Equipment 2, and determine the tax loss
on the sale of Equipment 1.
2. For 2013, calculate Jackson’s taxable income and tax
liability.
Prepare a schedule reconciling net income per book to
taxable income before special deductions (Form 1120, line
28).
Submission Requirements:
Submit your answer in a Microsoft Word document, showing stepby-step
solutions for all calculations. The submission should use:
Font: Arial; 12-point
Line spacing: Double
Citation: APA format
