Question

In year 0, Javens Inc. sold machinery with a fair market value of $510,000 to Chris. The machinery's original basis was $400.860 and Javens's accumulated depreciation on the machinery was $61,000, so its adjusted basis to Javens was $339,860. Chris paid Javens $51,000 immediately in year O) and provided a note to Javens indicating that Chris would pay Javens $76,500 a year for six years beginning in year 1 points Skipped a. What is the amount and character of the gain that Javens will recognize in year 0? b. What amount and character of the gain will Javens recognize in years 1 through 6? Complete this question by entering your answers in the tabs below. eBook Required Required B What is the amount and character of the gain that Javens will recognize in year 02 (Do not round intermediate computations.) Amount References Description Recognized Gain Character of Recognized Gain Ordinary Gain $1231 gain - Requinea Required B >

Answer 1

Answer of the First question -

Step - (1) - Information Given -

In year 0, Javens Inc. sold machinery with a fair market value of $510000 to Chris.

The machinery's original basis was $400860 and Javens's accumulated depreciation on the machinery was $61000, so its adjusted basis to Javens was $339860.

Chris paid Javens $51000 immediately (in year 0) and provided a note to Javens indicating that Chris would pay Javens $76500 a year for six years beginning in year 1 .

.

Step - (2) - Working Note -

No.	Particulars	Calculations / Remarks
1.	Amount realized	Given in question	$510000
2.	Original basis	Given in question	$400860
3.	Accumulated depreciation	Given in question	$61000
4.	Adjusted basis	Given in question	$339860
5.	Realized gain [(1) - (4)]	[ $510000 - $339860 ]	$170140
6.	Ordinary Gain / Ordinary income ( Unrecaptured §1250 Gain )	Accumulated depreciation	$61000
7.	§1231 Gain eligible for installment reporting [(5) - (6)]	[$170140 - $61000]	$109140
8.	Gross profit percentage [(7) / (1)]	[($109140 / $510000) *100]	21.4 %
9.	Payment received in year 0	Given in question	$51000
10.	Gain recognized on payment in year 0 Ordinary Gain [(6)] + §1231 Gain [(9) * (8)]	[$61000] + [($51000 * 21.4%)]	$71914
11.	Payment received in years 1 through 6 (each year)	Given in question	$76500
12.	Gain recognized from years 1 through 6 ((with each payment) [(11) * (8)]	[$76500 * 21.4 %]	$16371

.

Step - (3) -- ( a.) The amount and character of the gain that Javens will recognize in year 0 -

Description	Calculations	Amount
Recognized Gain	As per working note no.(10)	$71914
Character of Recognized Gain
Ordinary Gain	As per working note no.(10)	$61000
§1231 Gain	As per working note no.(10)	$10914

.

Step - (4) -- ( b.)The amount and character of the gain will Javens recognize in years 1 through 6 -

= $16371 [As per working note no.(12)]