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 §1231 gain.b. $20,000 ordinary gain (§1245 recapture), and $5,000 §1231 gain.c. $5,000 ordinary gain (§1245 recapture), and $20,000 §1231 gain.d. $25,000 capital gain.e. None of these.

Answer 1

Answer:

$25,000 capital gain

Explanation:

The book value of the equipment on the date of disposal if $55,000 having dedcuted depreciation of $20,000 from cost price of $75,000. Gian or loss on disposal of a fixed asset(equipment) is the difference between the selling price and book value ($80,000-$55,000) giving us $25,000.