Please Help Required B Eleven years ago, Lynn Inc. purchased a warehouse for $31

Question

Please Help Required B

Eleven years ago, Lynn Inc. purchased a warehouse for $315,000. This year, the corporation sold the warehouse to Firm D for $80,000 cash and D's assumption of a $225,000 mortgage. Through date of sale, Lynn deducted $92,300 straight-line depreciation on the warehouse. a. Compute Lynn's gain recognized on sale of the warehouse. b. How much of this recognized gain is treated as capital gain and how much is ordinary? c. How would your answers change if Lynn is a noncorporate business? Complete this question by entering your answers in the tabs below Required A Required B Required C How much of this recognized gain is treated as capital gain and how much is ordinary? (Leave no cell blank. Enter "O" for cells that do not have an amount.) Capitalgain Ordinary gain

Explanation / Answer

Adjusted basis of warehouse = 315,000 - 92,300 = 222,700

Gain realized = 80,000+225,000 - 222,700 = 82,300

twenty percent of gain to the extent of depreciation deduction taken in previous years is considered ordinary gain.

Thus, ordinary gain = 82,300 * 20% = 16,460

Capital gain = 82,300 - 16,460 = 65,840

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