Question

Problem 17-55 (a) (LO. 3, 8) Henny sold three items of business equipment for a total of $90,000. None of the equipment was appraised to determine its value. Henny's cost and adjusted basis for the assets are as follows: Asset Loader Forklift Cost $55,000 $42,000 28,000 $125,000 Adjusted Basis $15,000 17,000 18,000 Backhoe Total $50,000 Henny has been unable to establish the fair market values of the three assets. All she can determine is that combined they were worth $90,000 to the buyer in this arm's length transaction. How should Henny allocate the sales price and figure the gain or loss on the sale of the three assets? Do not round intermediate computations. If required, round your final answers to the nearest dollar. a. First, Henny must consider that all § 1245. If the equipment is sold for more treated as § 1231 gain . of the equipment depreciation taken is subject to recapture as ordinary income than what was paid for it, the excess of the selling price over the original cost due to is

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1. First, Henry must consider that all of equipment depreciation taken is subject to recapture as ordinary income due to 1245. If Equipment is sold more than what was paid for it, the excess selling price over the original cost is treated as 1231 Gain 2. Allocation of one third to each of asset Asset Basis Calculation Loader Forklift Backhoe Total $ 30,000 90000*(1/3) $ 30,000 90000*(1/3) $ 30,000 90000*(1/3) $ 90,000 Allocated Sale Price Cost Difference Gain or Loss A = Calculation C=A-B 30,000 $ 55,000 $ -25,000 Loss 30,000 $ 42,000 $ -12,000 Loss 30,000 $ 28,000 $ 2,000 Gain 90,000 $125,000 3. Allocation relative to original cost Asset Basis Calculation Loader Forklift Backhoe Total $ 55,000 90000*(55000/125000) $ 42,000 90000*(42000/125000) $ 28,000 90000*(28000/125000) $ 125,000 Allocated Sale Price Cost Difference Gain or Loss A = Calculation B C =A-B $ 39,600 $ 55,000 $ - 15,400 Loss $ 30,240 $ 42,000 $ -11,760 Loss $ 20,160 $ 28,000 $ -7,840 Loss 90,000 $125,000 4. Allocation relative to adjusted basis Asset Basis Calculation Loader Forklift Backhoe Total 15,000 90000*(15000/50000) 17,000 90000*(17000/50000) 18,000 90000*(18000/50000) 50,000 Allocated Sale Price Cost Difference Gain or Loss A = Calculation C=A-B $ 27,000 $ 55,000 $ -28,000 Loss 30,600 $ 42,000 $ -11,400 Loss $ 32,400 $ 28,000 $ 4,400 Gain 90,000 $125,000