Question

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?A. $25,000 section 1231 gain.B. $20,000 ordinary gain, and $5,000 section 1231 gain.C. $5,000 ordinary gain, and $20,000 section 1231 gain.D. $25,000 capital gain.E. None of the above.

Answer 1

Answer:

Option (D) is correct.

Explanation:

Selling amount of equipment = $80,000

Purchasing price 2 years ago = $75,000

Depreciation expense = $20,000

Gain(Loss) = Cash proceeds - Book value

                  = $80,000 - ($75,000 - $20,000)

                  = $80,000 - $55,000

Capital gain = $25,000

Therefore, the amount and character of Bozeman's gain is $25,000.