Question

Moab Inc. manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during the year.

  

1. Moab Inc. sold a machine that it used to make computerized gadgets for $30,000 cash. It originally bought the machine for $21,000 three years ago and has taken $8,000 depreciation.
2. Moab Inc. held stock in ABC Corp., which had a value of $21,000 at the beginning of the year. That same stock had a value of $24,230 at the end of the year.
3. Moab Inc. sold some of its inventory for $8,800 cash. This inventory had a basis of $5,000.
4. Moab Inc. disposed of an office building with a fair market value of $84,000 for another office building with a fair market value of $62,200 and $21,800 in cash. It originally bought the office building seven years ago for $71,000 and has taken $15,000 in depreciation.
5. Moab Inc. sold some land held for investment for $46,000. It originally bought the land for $47,400 two years ago.
6. Moab Inc. sold another machine for a note payable in four annual installments of $16,500. The first payment was received in the current year. It originally bought the machine two years ago for $50,000 and has claimed $9,900 in depreciation expense against the machine.
7. Moab Inc. sold stock it held for eight years for $3,650. It originally purchased the stock for $2,550.
8. Moab Inc. sold another machine for $9,100. It originally purchased this machine six months ago for $10,000 and has claimed $530 in depreciation expense against the asset.

Required:

1. 1. Determine the gain/loss realized and recognized in the current year for each of these events provided above. Also determine whether the gain/loss recognized is §1231, capital, or ordinary.
2. 2. From the recognized gains/losses determined in part 1, determine the net capital gain/loss, the net ordinary gain/loss, and the net capital gain/loss Moab will recognize on its tax return. Moab, Inc. also has $3,800 of nonrecaptured §1231 losses from previous years.

Complete this question by entering your answers in the tabs below.

• Req 1

Determine the gain/loss realized and recognized in the current year for each of these events provided above. Also determine whether the gain/loss recognized is §1231, capital, or ordinary. (Loss amounts should be indicated by a minus sign.)

	Asset Realized Gain/(Loss) Recognized Gain/(Loss) §1245 Ordinary Income §291 Ordinary Income §1231 Gain/(Loss) Ordinary Income/(Loss) Capital Gain/(Loss) 1a 1b 1c 1d 1e 1f 1g 1h Totals $0 $0 $0 $0 $0 $0 $0

Req 2.

From the recognized gains/losses determined in part 1, determine the net capital gain/loss, the net ordinary gain/loss, and the net capital gain/loss Moab will recognize on its tax return. Moab, Inc. also has $3,800 of nonrecaptured §1231 losses from previous years. (Loss amounts should be indicated by a minus sign.)

	§1231 Netting Process: §1231 gain §1231 loss Net §1231 gain Nonrecaptured §1231 losses Net §1231 gain Ordinary Income: §1245 recapture §291 recapture Ordinary income Ordinary loss Ordinary income from §1231 netting Total Capital Gains and Losses: Capital gain Capital loss Net capital gain

Answer 1

TABLE - 1

Asset	Realised Gain / (Loss)	Recognised Gain / (Loss)	§1245 Ordinary Income	§291 Ordinary Income	§1231 Gain / (Loss)	Ordinary Income / (Loss)	Capital Gain / (Loss)
1a	17,000	17,000	8,000	-	9,000	-	-
1b	-	-	-	-	-	-	-
1c	3,800	3,800	-	-	-	3,800	-
1d	28,000	21,800	-	3,000	18,800	-	-
1e	-1,400	-1,400	-	-	-	-	-1,400
1f	25,900	13,900	9,900	-	4,000	-	-
1g	1,100	1,100	-	-	-	-	1,100
1h	-370	-370	-	-	-	-370	-

TABLE - 2

§1231 Netting Process:
§1231 gain	31,800.00
§1231 loss	-
Net §1231 gain	31,800.00
Nonrecaptured §1231 losses	-3,800.00
Net §1231 gain	28,000.00
Ordinary Income:
§1245 recapture	17,900.00
§291 recapture	3,000.00
Ordinary income	3,800.00
Ordinary loss	-370.00
Ordinary income from §1231 netting	28,000.00
Total	52,330.00
Capital Gains and Losses:
Capital gain	1,100.00
Capital loss	-1,400.00
Net capital gain	-300.00