Question

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On August 1 of year 0, Dirksen purchased a machine for $21,250 to use in its business. On December 4 of year 0, Dirksen sold the machine for $17,000. Use MACRS Table. (Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Round other intermediate computations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain or loss Dirksen will recognize on the sale?

Amount Description Total Gain/(Loss) Recognized Character of Recognized Gain/(Loss): Ordinary Gain/(Loss) $1231 gain (loss)

b. What is the amount and character of the gain or loss Dirksen will recognize on the sale if the machine is sold on January 15 of year 1 instead?

Answer 1

ANSWER

a)

No accumulated depreciation if asset is placed in service & sold in same year.

Sale amount = $17000

Original amount = $21250

A cc. Dep = . 0

Adjusted basis = $21250

Gain/ loss = $17000 - $21250 = ($4250) loss

Ordinary loss = lower of acc. Dep or recognized gain/loss = ($2000)

No 1231 as asset was not in use for a period longer than a year.

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