In year 0, Longworth Partnership purchased a machine for $53,250 to use in its b
ID: 2568850 • Letter: I
Question
In year 0, Longworth Partnership purchased a machine for $53,250 to use in its business. In year 3, Longworth sold the machine for $44,900. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $31,200. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)
a. What is the amount and character of the gain (loss) Longworth will recognize on the sale?
b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds were increased to $62,750?
c. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds were decreased to $15,600?
Explanation / Answer
a Cost of machine 53250 accumlated dep 31200 carrying value of machine 22050 sales prices 44900 Profit/(loss) on sale(44900-22050) 22850 Character of gain (loss): ordinary gain (loss) 22850 1231 gain (loss) - Because the entire gain is caused by depreciation deductions, the entire gain is treated as ordinary income b Cost of machine 53250 accumlated dep 31200 carrying value of machine 22050 sales prices 62750 Profit/(loss) on sale(62750-22050) 40700 Character of gain (loss): ordinary gain (loss) 31200 1231 gain (loss) 9500 Only the gain caused by depreciation is treated as ordinary income c Cost of machine 53250 accumlated dep 31200 carrying value of machine 22050 sales prices 15600 Profit/ (loss) on sale(15600-22050) -6450 Character of gain (loss): ordinary gain (loss) - 1231 gain (loss) -6450