Question

In: Accounting

Rayburn Corporation has a building that it bought during year 0 for $850,000. It sold the building in year 5.

Rayburn Corporation has a building that it bought during year 0 for $850,000. It sold the building in year 5. During the time it held the building Rayburn depreciated it by $100,000.

What is the amount and character of the gain or loss Rayburn will recognize on the sale in each of the following alternative situations? (Loss amounts should be indicated by a minus sign. Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.)

a. Rayburn receives $840,000.

Total Gain/(Loss) Recognized:

§1231 gain/loss:

b. Rayburn receives $900,000.

Total Gain/(Loss) Recognized:

§1231 gain/loss:

c. Rayburn receives $700,000.

Total Gain/(Loss) Recognized:

§1231 gain/loss:

Solutions

Expert Solution

a. Building sold for $840,000

Value of Building at year 5 = $850,000 - $100,000 (Depreciated)

= $750,000

Total gain recognised = $840,000 - $750,000

= $90,000

§291 recapture % = 20%

§291 recapture base i.e lessor of gain recognised or depreciation charged = $90,000

§291 recapture (ordinary income) = 20% of recapture base

= 20% of $90,000

=$18,000

§1231 gain=Gain recognised - §291 recapture (ordinary income)

= $90,000 - $18,000

= $72,000

b. Building sold for $900,000

Value of Building at year 5 = $850,000 - $100,000 (Depreciated)

= $750,000

Total gain recognised = $900,000 - $750,000

= $150,000

§291 recapture % = 20%

§291 recapture base i.e lessor of gain recognised or depreciation charged = $100,000

§291 recapture (ordinary income) = 20% of recapture base

= 20% of $100,000

=$20,000

§1231 gain=Gain recognised - §291 recapture (ordinary income)

= $150,000 - $30,000

= $130,000

c. Building sold for $700,000

Value of Building at year 5 = $850,000 - $100,000 (Depreciated)

= $750,000

Total loss recognised = $700,000 - $750,000

= -$50,000

§291 recapture % = 20%

§291 recapture base i.e lessor of loss recognised or depreciation charged = $0

§291 recapture (ordinary income) = 20% of recapture base

= 20% of $0 = $0

§1231 loss= loss recognised - §291 recapture (ordinary income)

= -$50,000 - $0 = -$50,000

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

5. Kirby Corporation bought a building and the land on which it is situated for a...

5. Kirby Corporation bought a building and the land on which it is situated for a total cash price of $429,000. The company paid transfer costs to the lawyer of $5,000. Renovations done to the building totaled $52,000. The land and building were independently appraised at market values of $150,000 and $350,000 before the renovation respectively. Required: a) Allocate the cost of the property on the basis of the appraised values. Ensure you show your calculations. b) Prepare the journal...

Your company's regional offices are located in Vancouver in a building rented for $850,000 per year...

Your company's regional offices are located in Vancouver in a building rented for $850,000 per year (payable at the end of each year). The building is for sale for $ Y. The local branch of the Royal Bank is willing to provide a mortgage of $2,800,000 toward the purchase of the building. The duration of the mortgage is 20 years, at a yearly interest rate of 4%. The mortgage will have to be repaid by 20 equal yearly (end of...

A corporation bought a 7-year class machine 3 years ago for $140,000 and sold it today...

A corporation bought a 7-year class machine 3 years ago for $140,000 and sold it today for $100,000. The machine is being depreciated to zero salvage value using straight-line method. If the firm's tax rate is 34%, what is the tax effect of the sale? -$6,800 -$3,400 $3,400 $6,800 question: What is the Payback period of a project with cash flows of -350,000 in year 0, then 100,000 each in years 1, 2 & 3, then 250,000 in year 4?...

You bought 500 shares of stock A at $600 on day 0 and you sold it...

You bought 500 shares of stock A at $600 on day 0 and you sold it at $1000 on day 700. The daily discount rate is 0.0001%. How much profit did you make in terms of net present value?

The corporation whose stock can be bought and sold on stock exchanges and in over the...

The corporation whose stock can be bought and sold on stock exchanges and in over the counter markets are referred to as closely held corp sole proprietorships privately owned Corp publicly owned corp 2. if the prepaid expenses are not adjusted assets on the balance sheet will not be affected will be understand may be either overstated or understated will be overstated 3. which of the following account would be closed at the end of the year acc depreciation capital...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $88,500 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $518,000. Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $80,100 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $510,000. Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $87,000 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $515,000. Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore...

During its first year of operations, Drone Zone Corporation (DZC) bought goods from a manufacturer on...

During its first year of operations, Drone Zone Corporation (DZC) bought goods from a manufacturer on account at a cost of $63,000. DZC returned $9,300 of this merchandise to the manufacturer for credit on its account. DZC then sold $51,000 of the remaining goods at a selling price of $77,600. DZC records sales returns as they occur and then records estimated additional returns at year-end. During the year, customers returned goods that had been sold at a price of $8,100....

During 2015, Mongo bought land with a building across the street. The purchased price was $350,000...

During 2015, Mongo bought land with a building across the street. The purchased price was $350,000 for the land and building. Mongo intends to build a new building on the land and demolish the old building across the street. The cost of demolishing was $30,000 and they were able to recoupe $10,000 of these costs by selling the scrap to a recycler. 1. How should this be accounted for 2. What are the journal entries

Subjects