Question

Koil Corporation generated $742,000 ordinary income from the sale of inventory to its customers. It also sold three noninventory assets during the year. Compute Koil’s taxable income assuming that:

a.The first sale resulted in a $82,800 capital gain, the second sale resulted in a $16,900 capital loss, and the third sale resulted in a $27,900 capital loss.

b.The first sale resulted in a $24,600 ordinary gain, the second sale resulted in a $42,750 capital gain, and the third sale resulted in a $68,800 capital loss.

c.The first sale resulted in a $9,500 capital gain, the second sale resulted in a $21,000 capital loss, and the third sale resulted in an $11,450 ordinary loss.

Answer 1

Answer

A.

Koil’s taxable income = ordinary income + capital gain - capital losses

                                =$742000 + $82,800 - ($16,900+$27,900)

                                =$780000

B.

Koil’s taxable income = ordinary income + ordinary gain + capital gain - allowable capital losses

                             =$742000+$24600+$42750-$42750

                                 =$766600

(The $26050 Capital loss is excess of capital gain is nondeductible this year)

C.

Koil’s taxable income = ordinary income + capital gain - capital losses - ordinary loss

                                =$742000+$9500-$9500-$11450

                                =$730550

(The $11500 Capital loss is excess of capital gain is nondeductible this year)