Jackson Corporation prepared the following book income statement for its year ended

December 31, 2018:

Sales $950,000

Minus: Cost of goods sold (450,000)

Gross profit $500,000

Plus: Dividends received on Invest Corporation stock $ 3,000

Gain on sale of Invest Corporation stock 30,000

Total dividends and gain 33,000

Minus: Depreciation ($7,500 + $52,000) $ 59,500

Bad debt expense 22,000

Other operating expenses 105,500

Loss on sale of Equipment 1: 70,000

Total expenses and loss (257,000)

Net income per books before taxes $276,000

Minus: Federal income tax expense (90,000)

Net income per books $186,000

Information on equipment depreciation and sale:

Equipment 1:

Acquired March 3, 2016 for $180,000

For books: 12-year life; straight-line depreciation

Sold February 17, 2018 for $80,000

Sales price $ 80,000

Cost $180,000

Minus: Depreciation for 2016 ( year) $ 7,500

Depreciation for 2017 ($180,000/12) 15,000

Depreciation for 2018 ( 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 and elected out of bonus depreciation.

Equipment 2:

Acquired February 16, 2017 for $624,000

For books: 12-year life; straight-line depreciation

Book depreciation in 2018: $624,000/12 = $52,000

For tax: Seven-year MACRS property for which the corporation made the Sec. 179

election in 2017 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,

2016, for $25,000 and sold the stock on December 21, 2018, for $55,000.

Required:

a. For 2018, calculate Jackson's tax depreciation deduction for Equipment 1 and

Equipment 2, and determine the tax loss on the sale of Equipment 1.

b. For 2018, calculate Jackson's taxable income and tax liability.

c. Reconcile net income per books to taxable income before special

deductions (Form 1120, line 28).