Question

Thanks for the help in advance!

Required information The following information applies to the questions displayed below. In year O, Longworth Partnership purchased a machine for $53,500 to use in its business. In year 3, Longworth sold the machine for $40,700. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $22,500. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) c.What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are decreased to $23,600? Description Amount Total Gain/(Loss) Recognized Character of Recognized Gain/(Loss): Ordinary Gain/(Loss) $1231 gain/(loss)

Answer 1

Answer.

if sales proceeds decrease to 23600 $ then,

Description	Amount ($)
Total loss recognised	–7400
Character of recognised loss:
ordinary loss	–7400
1231 loss	0

Calculation :

1) amount realised 40700 $

2) original basis 53500 $

3) depriciation 22500 $

4) recognised gain 9700 $ (above serial no.1-2+3 )

if amount realise is 23,600 $ then,

recognised loss would be 7400 $

5)if amount realise is 23,600 $ and recognized loss is 7400 $ then,

ordinary loss 7400 $( above serial no. 3 or 4 whichever is lower)

6)for amount realise 23,600 $ recognised and ordinary loss is 7400 $ then,

1231 gain 0 $ (above serial no.4 – 5)