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 1 year ago
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