This year, Sigma Inc. generated $633,000 income from its routine business operations. In addition, the corporation...

This year, Sigma Inc. generated $633,000 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months.

	InitialBasis		Acc.Depr.*		Sale Price
Marketable securities	$	183,200	$	0	$	85,250
Production equipment		108,400		86,720		35,500
Business realty:
Land		222,750		0		233,250
Building		287,000		86,100		298,000

*Through date of sale.

Compute Sigma’s taxable income assuming that it used the straight-line method to calculate depreciation on the building and has no nonrecaptured Section 1231 losses.
Recompute taxable income assuming that Sigma sold the securities for $186,400 rather than $85,250.

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Expert Solution

Part A

	Amount realized	Adjusted basis	realized gain /(loss)	ordinary gain/(loss)	section 1231gain/(loss)
Production equipment	35500	21680 (108400-86720)	13820	13820
Business Land	233250	222750	10500		10500
Business building	298000	200900 (287000-86100)	97100	19420 (97100*20%)	77680 (97100*80%)
				33240	88180

Net income from operations		633000
Ordinary income from business assets		33240
Section 1231 gain (treated as capital gain)		88180
Sale of marketable securities :
Amount realized	85250
Basis	(183200)
Realized loss	(97950)
Deductible loss limited to section 1231 gain		(88180)
Taxable income		666240

Part B

Net income from operations		633000
Ordinary income from business assets		33240
Section 1231 gain		88180
Sale of marketable securities:
Amount realized	186400
Basis	(183200)
Capital gain		3200
Taxable income		757620

ekkarill92 answered 3 months ago

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