Actually, you should NOT be using Worksheet 1-5 in your situation, just Form 8606. You do not need this worksheet because you are not deducting ANY of your contributions (see the instructions for use of 1-5). The worksheet treats your contributions as non deductible (even if they were not), so in your case it just produces the same taxable amount as Form 8606 does by itself.
The reason your conversion includes $168 taxable is mainly due to the $291 in gains your 2012 contribution generated through 12/31/2012.
Your 2012 conversion recovers 4,885 of your 10,000 basis, leaving you 5,115 carrying forward to 2013. You did not indicate the amount of your 2013 conversion, but if it was 5,291 (YE 2012 value), the taxable amount of your 2013 conversion will be $176 (5291 less 5115). To prevent this figure from going higher, convert your 2013 contribution immediately after making the contribution. That conversion will be added to your present conversion, but the total taxable amount would still be around $176 assuming no gains from 12/31 to your first conversion date.