In Class Solution Bmgt 417
Chapter 10
Property Dispositions
McGraw-Hill Connect Answers
34. [LO 1] Lassen Corporation sold a machine to a machine dealer for $25,000. Lassen bought the machine for $55,000 and has claimed $15,000 of depreciation expense on the machine. What gain or loss does Lassen realize on the transaction?
($15,000) loss, computed as follows: Description | Amount | Explanation | (1) Amount Realized | $25,000 | Given | (2) Adjusted Basis | 40,000 | $55,000 original basis - $15,000 accumulated depreciation | Gain (Loss) Realized | ($15,000) | (1) – (2) |
37. [LO 3, 4] In year 0, Longworth Partnership purchased a machine for $40,000 to use in its business. In year 3, Longworth sold the machine for $35,000. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $22,000.
a. What is the amount and character of the gain Longworth will recognize on the sale? b. What is the amount and character of the gain Longworth will recognize on the sale if the sale proceeds were increased to $45,000? c. What is the amount and character of the gain Longworth will recognize on the sale if the sale proceeds were decreased to $15,000?
a. $17,000 ordinary income.
Description | Amount | Explanation | (1) Amount Realized | $35,000 | Given | (2) Original Basis | 40,000 | Given | (3) Accumulated Depreciation | 22,000 | Given | (4) Adjusted Basis | 18,000 | (2) - (3) | (5) Gain/(Loss) Recognized | $17,000 | (1) – (4) | (6) Ordinary income (§1245 depreciation recapture) | $17,000 | Lesser of (3) or (5) | §1231 gain | $0 | (5) – (6) | Because the entire gain is caused by depreciation deductions, the entire gain is treated as ordinary income under §1245. |
b.
$27,000 gain ($22,000 ordinary and $5,000 §1231) computed as follows:
Description | Amount | Explanation | (1) Amount Realized | $45,000 | Given | (2) Original Basis | 40,000 | Given | (3)
Property Dispositions
McGraw-Hill Connect Answers
34. [LO 1] Lassen Corporation sold a machine to a machine dealer for $25,000. Lassen bought the machine for $55,000 and has claimed $15,000 of depreciation expense on the machine. What gain or loss does Lassen realize on the transaction?
($15,000) loss, computed as follows: Description | Amount | Explanation | (1) Amount Realized | $25,000 | Given | (2) Adjusted Basis | 40,000 | $55,000 original basis - $15,000 accumulated depreciation | Gain (Loss) Realized | ($15,000) | (1) – (2) |
37. [LO 3, 4] In year 0, Longworth Partnership purchased a machine for $40,000 to use in its business. In year 3, Longworth sold the machine for $35,000. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $22,000.
a. What is the amount and character of the gain Longworth will recognize on the sale? b. What is the amount and character of the gain Longworth will recognize on the sale if the sale proceeds were increased to $45,000? c. What is the amount and character of the gain Longworth will recognize on the sale if the sale proceeds were decreased to $15,000?
a. $17,000 ordinary income.
Description | Amount | Explanation | (1) Amount Realized | $35,000 | Given | (2) Original Basis | 40,000 | Given | (3) Accumulated Depreciation | 22,000 | Given | (4) Adjusted Basis | 18,000 | (2) - (3) | (5) Gain/(Loss) Recognized | $17,000 | (1) – (4) | (6) Ordinary income (§1245 depreciation recapture) | $17,000 | Lesser of (3) or (5) | §1231 gain | $0 | (5) – (6) | Because the entire gain is caused by depreciation deductions, the entire gain is treated as ordinary income under §1245. |
b.
$27,000 gain ($22,000 ordinary and $5,000 §1231) computed as follows:
Description | Amount | Explanation | (1) Amount Realized | $45,000 | Given | (2) Original Basis | 40,000 | Given | (3)