(Question and Answer): 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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(Question and Answer): 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
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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)

 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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