Explore BrainMass

Corporate Tax and Book Income Statement

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Corporate Tax
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 155,000
Total expenses and loss (222,000)
Net income per books before taxes $211,000
Minus: Federal income tax expense (70,000)
Net income per books $141,000
Information on equipment depreciation and sale:
Equipment 1:
- Acquired March 3, 2008 for $180,000
- For books: 12-year life; straight-line depreciation
- Sold 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%.

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.

© BrainMass Inc. brainmass.com October 25, 2018, 7:36 am ad1c9bdddf

Solution Preview

See the attached file.


Equipment 1: You only have 6 months of depreciation (rounded) for this year because of the asset sale. Look at the attached spreadsheet (you will need to enter in the assumptions to run the calculation, but it's a great tool). So, you have $31,487 for year 3, ...

Solution Summary

The solution discusses the corporate tax and book income statement.

See Also This Related BrainMass Solution

Geraldo Corporation's audited financial statements

Geraldo, a calendar-year, accrual-basis corporation reported $931,000 net income before tax on its audited financial statements. Its records reveal the following information:

- On February 1, Geraldo purchased a business and capitalized $500,000 of the cost to goodwill.
- Book depreciation expense was $66,100, and MACRS depreciation was $77,800.
- Geraldo paid an $18,500 premium for its employee group term life insurance plan and a $5,900 premium for its key-person life insurance policies.
- Geraldo accrued a $35,000 expense for the estimated settlement of a breach-of-contract suit that should go to court next year.

a. Compute Geraldo's taxable income.
b. Compute Geraldo's federal tax expense per books and federal tax payable.
c. Explain why tax liability and book-tax expense are different and indicate whether the difference is permanent or temporary.

View Full Posting Details