In year 0, Longworth Partnership purchased a machine for $57,250 to use in its business. In...

In year 0, Longworth Partnership purchased a machine for $57,250 to use in its business. In year 3, Longworth sold the machine for $44,300. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $24,900. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain (loss) Longworth will recognize on the sale?

Description	Amount
Total Gain/(Loss) Recognized
Character of Recognized Gain/(Loss):
Ordinary Gain/(Loss)
§1231 gain/(loss)

b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are increased to $69,000?

Description	Amount
Total Gain/(Loss) Recognized
Character of Recognized Gain/(Loss):
Ordinary Gain/(Loss)
§1231 gain/(loss)

c. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are decreased to $20,200?

Description	Amount
Total Gain/(Loss) Recognized
Character of Recognized Gain/(Loss):
Ordinary Gain/(Loss)
§1231 gain/(loss)

Expert Solution

SOLUTION :-

a. What is the amount and character of the gain (loss) Long worth will recognize on the sale?

Particulars	Amount
Amount realized	$44,300
Original basis	$57,250
Accumulated depreciation	$24,900
Adjusted basis	= $57,250 - $24,900 = $32,350
Gain / loss recognized	= $44,300 - $32,350 = $11,950
Ordinary Gain/(Loss)	$11,950 ( lessor of $24,900 or $11,950)
§1231 gain	= $11,950 - $11,950 = $0

b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are increased to $69,000?

Particulars	Amount
Amount realized	$69,000
Original basis	$57,250
Accumulated depreciation	$24,900
Adjusted basis	= $57,250 - $24,900 = $32,350
Gain / loss recognized	= $69,000 - $32,350 = $36,650
Ordinary Gain/(Loss)	$24,900 [ lessor of $24,900 or $36,650 ]
§1231 gain	= $36,650 - $24,900 = $11,750

c. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are decreased to $20,200?

Particulars	Amount
Amount realized	$20,200
Original basis	$57,250
Accumulated depreciation	$24,900
Adjusted basis	= $57,250 - $24,900 = $32,350
Gain / loss recognized	= $20,200 - $32,350 = - $12,150
Ordinary Gain/(Loss)	$0
§1231 loss	= - $12,150 - 0 = - $12,150

ekkarill92 answered 2 years ago

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