Question

Please use 2019 tax rates and schedule

Two years ago, Bethesda Corporation bought a delivery truck for $30,000 (not subject to the luxury auto depreciation limits). Bethesda used MACRS 200 percent declining balance and the half-year convention to recover the cost of the truck, but it did not elect §179 expensing or eligible bonus depreciation. Answer the questions for the following alternative scenarios.

a. Assuming Bethesda used the truck until it sold it in March of year 3, what depreciation expense can it claim on the truck for years 1 through 3?

b. Assume that Bethesda claimed $18,500 of depreciation expense on the truck before it sold it in year 3. What is the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $17,000, and incurred $2,000 of selling expenses on the sale?

c. Assume that Bethesda claimed $18,500 of depreciation expense on the truck before it sold it in year 3. What is the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $35,000, and incurred $3,000 of selling expenses on the sale?

d. Assume that Bethesda claimed $18,500 of depreciation expense on the truck before it sold it in year 3. What is the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $7,000, and incurred $2,000 of selling expenses on the sale?

Answer 1

ANSWER

B 1 a) 2 year ou AwN Original Basis Depreciation rate Depreciation| 30000 0.2 6000 30000 0.32 9600 3 30000 0.096 2880 18480 Total 7 8 b) Compute gain or loss on sale of delivery truck 9 Particulars Amount ($) Amount ($) 10 Selling price 17000 11 Selling expenses -2000 12 Amount realized 15000 13 Original basis 30000 14 Accumulated depreciation 18500 15 Adjusted basis 11500 16 Gain (loss) realized 3500 17 Section 1245 depreciation recapture 3500 18 section 1231 gain

| 20 c) Compute gain or loss on sale of delivery truck 21 Particulars Amount ($) Amount ($) 22 Selling price 35000 23 Selling expenses -3000 24 Amount realized 320001 25 Original basis 30000 26 Accumulated depreciation 18500 27 Adjusted basis 115001 28 Gain (loss) realized 20500 29 Section 1245 depreciation recapture 18500 30 section 1231 gain 2000

4) Compute gain or loss on sale of delivery truck 33 Particulars Amount ($) Amount ($) 34 Selling price 7000 35 Selling expenses -2000 36 Amount realized 5000 37 Original basis 30000 38 Accumulated depreciation 18500 39 Adjusted basis 11500 40 Gain (loss) realized -6500 41 Section 1245 depreciation recapture 6500 42 section 1231 gain

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