Question

Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets: Asset Building Sparkle Corporation stock Sales Price Cost $ 756,000 $735,000 228,000 284,000 Accumulated Depreciation $33,000 n/a Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $823,000. What are Shimmer's taxable income and tax liability for the year? (Assume a Corporate income tax rate as 21%.) Taxable income Tax liability

Answer 1

To calculate simmers Taxable income and Tax Liability

Asset	Sale price	Adjusted basis	Character
Building	756,000	702,000	7600 (Section 291 12% of the depreciation) Rest is 46,400(section 1231)
Sparkle Corporation Stock	228,000	284,000	56,000

$46400 is a long-term gain and can be offset by capital loss from the sale of stock

But corporation can use capital losses up to the capital gain that is 46,400 out of 56,000 rest 9600 can be carried forward 5 years or 3 years backward

Taxable income before transactions$823,000 Ordinary income from sale 7,600 Taxable income after transactions $830,600

Tax liability ($830,600 × 21%)=174,426