On August 1 of year 0, Dirksen purchased a machine for $28,250 to use in its business. On December 4 of year 0, Dirksen sold the machine for $22,500. (Use

On August 1 of year 0, Dirksen purchased a machine for $28,250 to use in its business. On December 4 of year 0, Dirksen sold the machine for $22,500. (Use MACRS Table.) (Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Leave no answer blank. Enter zero if applicable.) https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/spilker_7e/table_1.jpg

a. What is the amount and character of the gain or loss Dirksen will recognize on the sale?

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Total gain/(loss) recongized

Character of Recognized gain/(loss)

ordinary gain/(loss)

1231 gain/(loss)

b. What is the amount and character of the gain or loss Dirksen will recognize on the sale if the machine is sold on January 15 of year 1 instead? Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Round other intermediate computations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.
Total gain/(loss) recongized

Character of Recognized gain/(loss)

ordinary gain/(loss)

1231 gain/(loss)

Expert Answer

 

a. Original basis(Purchase cost) 28250
Less: Acc.depn. 0
Adjusted basis 28250
Amt.Realised on sale 22500
Recognised loss(amt.realised-Adjusted Basis) -5750
a. Machine placed in service & sold in the same tax-year
So, no depreciation is allowed &
It is not a 1231 asset as it is held for less than a year
Character– Ordinary loss of amount 28250-22500= $ 5750
In any case ,as the machine is sold at a realized loss, there is no depreciation recapture–which is also 0
So, Total loss recognised = $ 5750
b.   Depreciation calculation
MACRS % Depn. Amt.
Year 0 14.29% 4037
Year 1– 24.49%*1/2 12.25% 3459
(Half-yr. depn. In the year of sale)
Total acc.depn. 7496
Original basis(Purchase cost) 28250
Less: Acc.depn. 7496
Adjusted basis 20754
Amt.Realised on sale 22500
Recognised gain(amt.realised-Adjusted Basis) 1746
Depn. Recapture
lesser of the realized gain of 1746& accumulated depreciation 7496,ie.
& Treated as Ordinary Income/gain 1746
ANSWER:
Total gain recongized 1746
Character of Recognized gain Ordinary M/c held for less than a year
ordinary gain/(loss)
1231 gain/(loss) Nil

a.

No depreciation is calculated for MACRS asset placed in service and disposed of in the same year, in accordance with IRS Publication 946
a. Original basis(Purchase cost) 28250
Less: Acc.depn. 0
Adjusted basis 28250
Amt.Realised on sale 22500
Recognised loss(amt.realised-Adjusted Basis) -5750
Depn. Recapture 0
Treated as Ordinary loss(lesser of -5750 &0) -5750
ANSWER:
Total loss recongized -5750
Character of Recognized loss Ordinary
ordinary loss
Not a 1231 asset
(as Held for less than a year)

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