Answer:
Consider the following explanations and calculations
Explanation:
part 1
a) KTZ sold an office building for $85,000 in cash. It originally bought the office building seven
years ago for $59,000 and has taken $14,000 in depreciation.-
Ans- Bookvalue on date of sale= $59000- $ 14000= $ 45000
Profit on sale of office building= $85000- $45000= $40000
As per section 1231, out of profit of $40,000, amount of $14000, i.e till the amount of depreciation will be an ordinary income and $26000 (40000-14000) will be considered capital income.
b)
KTZ sold another machine for $6,200. It originally purchased this machine six months ago for
$9,000 and has claimed $1,230 in depreciation expense against the asset.
Ans- As the asset was held for less than one year, the provision of section 1230 will not apply. Thus, the loss will be treated as ordinary loss. The amount of ordinary loss =cost-depreciation-salesprice=9000-1230-6200= $1570
c)
KTZ sold some of its inventory for $5,000 cash. This inventory had a basis of $8,000
Ans-Section 1230 will not be applied to inventories. Thus ordinary profit of $3000 (8000-3000) will be considered.
d)
KTZ held stock in XYZ Corp., which had a value of $19,000 at the beginning of the year. That
same stock had a value of $25,230 at the end of the year.
Ans- Stock is treated as lower of market value or cost, hence no treatment, willl be shown at $19000
e)
KTZ sold a machine that it used to make computerized dies for $26,300 cash. It originally bought
the machine for $16,200 three years ago and has taken $4,000 depreciation
Ans- Bookvalue of computer- 16200-4000= $12,200
Profit= 26300- 12200= $14100
As per section 1231, out of profit of $14,100, amount of $4000, i.e till the amount of depreciation will be an ordinary income and $10100 (14100-4000) will be considered capital income.
part 2
Net section 1231 gain=26,000 + 10100= $ $36100
Ordinary gain= 14000+3000+4000= $21000
Ordinary loss= $ 1570
