Question

In: Accounting

Davidson Industries, a sole proprietorship, sold the following assets in 2018: Asset Cost Acquired Depreciation Sale...

Davidson Industries, a sole proprietorship, sold the following assets in 2018:

Asset Cost Acquired Depreciation Sale Price Sale Date
Warehouse $ 105,000 10/10/11 $ 18,060 $ 125,250 3/15/18
Truck 13,000 1/15/17 4,680 11,950 1/14/18
Computer 16,000 7/31/17 4,240 7,690 8/31/18
  1. The following questions relate to the sale of the warehouse:
    (1) What is the adjusted basis of the warehouse?
    (2) What is the realized gain on the warehouse?
    (3) What amount of the gain is taxed according to § 1250 rules?
    (4) What amount is considered a § 1231 gain before netting?
  2. The following questions relate to the sale of the truck:
    (1) What is the adjusted basis of the truck?
    (2) What is the realized gain on the truck?
    (3) What amount of the gain is taxed according to § 1245 rules?
    (4) What amount of the gain is taxed as ordinary income?
  3. The following questions relate to the sale of the computer:
    (1) What is the adjusted basis of the computer?
    (2) What is the realized gain or loss on the sale?
    (3) Which IRC section code applies to this asset?

Solutions

Expert Solution

Particulars Warehouse Truck Computer
Sale price (a) $        125,250 $          11,950 $            7,690
Adjusted basis:
Cost $        105,000 $          13,000 $          16,000
Less: depreciation $         (18,060) $           (4,680) $           (4,240)
Adjusted basis (b) $          86,940 $            8,320 $          11,760
Gain/ (loss) on sale (a) - (b) $          38,310 $            3,630 $           (4,070)
Less: 1250 gain $                   -   $                   -   $                   -  
Less: 1245 gain $                   -   $           (3,630) $                   -  
Section 1231 gain/ (loss) $          38,310 $                   -   $           (4,070)
Answers:
Warehouse:
1 $          86,940
2 $          38,310
3 $                   -  
4 $          38,310
Truck:
1 $            8,320
2 $            3,630
3 $            3,630
4 $            3,630
Computer:
1 $          11,760
2 $           (4,070)
3 1231

Section 1245 income is lesser of gain realized and depreciation taken. It is taxable as ordinary income.

ekkarill92 answered 3 years ago
Next > < Previous

Related Solutions

During 2018, Karan acquired the following assets for use in her sole proprietorship: Asset Cost Date...
During 2018, Karan acquired the following assets for use in her sole proprietorship: Asset Cost Date Place in ServiceComputers & Info. System $400,00003/31/2018Assembly Equipment1,200,00008/15/2018Warehouse 700,00011/13/2018 a. What is the maximum amount of cost recovery Karen can claim with respect to these assets in 2018? b. What is each asset’s adjusted basis as of December 31, 2018? c. Assume Karan sells the warehouse on May 5, 2020. What will Karan’s adjusted basis in the warehouse be for purposes of determining her...
Siena Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property...
Siena Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property dispositions are as follows: Asset Cost Acquired Depreciation Sold For Sold On Rack $100,000 10/10/14 $62,000 $85,000 10/10/18 Forklift 35,000 10/16/15 23,000 5,000 10/10/18 Bin 87,000 03/12/17 34,000 60,000 10/10/18 If an amount is zero, enter 0. a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset. Asset Character of Gain or Loss Total Amount...
Amber Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property...
Amber Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property dispositions are as follows: Asset Cost Acquired Depreciation Sold For Sold On Rack $100,000 10/10/14 $100,000 $145,000 10/10/18 Forklift 35,000 10/16/15 23,000 3,000 10/10/18 Bin 87,000 03/12/17 31,000 60,000 10/10/18 a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset. If an amount is zero, enter 0. Asset Character of Gain or Loss Total Amount...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of $718,750 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $61,800. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On March 4 of Year 5, the equipment was sold for $105,300. Required: 1. Determine the annual depreciation expense...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of $656,250 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $56,400. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On March 4 of Year 5, the equipment was sold for $96,100. Required: 1. Determine the annual depreciation expense...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of...
Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of $625,000 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $53,700. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On March 4 of Year 5, the equipment was sold for $91,500. Required: 1. Determine the annual depreciation expense...
Depreciation by Two Methods; Sale of Fixed Asset New tire retreading equipment, acquired at a cost...
Depreciation by Two Methods; Sale of Fixed Asset New tire retreading equipment, acquired at a cost of $812,500 on September 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $69,900. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week...
Tracy started his sole proprietorship business two years ago and has never sold a §1231 asset....
Tracy started his sole proprietorship business two years ago and has never sold a §1231 asset. Tracy owned each of the assets for the entire 2 years he has been in business. In the current year, he sold the following business assets: Asset Original Cost Accumulated Depreciation Gain/Loss Desks $8,000 $2,000 ($2,000) Truck 12,000 6,000 (6,000) Equipment 18,000 12,000 13,500 Building 150,000 10,000 25,000Assuming Tracy’s marginal ordinary income tax rate is 30 percent, what is the character of Tracy’s gains...
Entries for Sale of Fixed Asset Equipment acquired on January 8 at a cost of $132,750...
Entries for Sale of Fixed Asset Equipment acquired on January 8 at a cost of $132,750 has an estimated useful life of 15 years, has an estimated residual value of $7,050, and is depreciated by the straight-line method. a. What was the book value of the equipment at December 31 the end of the fourth year? $ b. Assume that the equipment was sold on April 1 of the fifth year for $91,965. 1. Journalize the entry to record depreciation...
Entries for Sale of Fixed Asset Equipment acquired on January 8 at a cost of $170,450...
Entries for Sale of Fixed Asset Equipment acquired on January 8 at a cost of $170,450 has an estimated useful life of 20 years, has an estimated residual value of $7,450, and is depreciated by the straight-line method. a. What was the book value of the equipment at December 31 the end of the fourth year? $fill in the blank 6f412ff47fb6faf_1 b. Assume that the equipment was sold on April 1 of the fifth year for $130,562. 1. Journalize the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT