Question

In: Accounting

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)

Solutions

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


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