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yarga [219]
3 years ago
6

Samson Corporation sold the following during the year: Two delivery trucks purchased in March 2016 for $78,000 are sold in June

for $70,000 Land used for storage for 5 years sold for $400,000 that had a basis of $80,000 Machines with a basis of $200,000 are sold for $75,000 to obtain newer models. A building purchased 8 years ago for $350,000 is sold for $425,000 with an adjusted basis of $300,000 due to depreciation. What is the character and amount of gain or loss recognized? Put your response in Excel.
Business
1 answer:
Marta_Voda [28]3 years ago
7 0

Answer:

Truck = Short term capital loss of $8,000

Land = Long term capital gain of $320,000

Machine = Long term capital loss of $125,000

Building = Long term capital gain of $125,000

Net effect Long term capital gain of $125,000

And Short Term Capital Loss of $8,000

Explanation:

As for the provided information we have,

Sale of Trucks within a few months, as purchased in March and sold in June, therefore,

Sale price - Carrying value = $70,000 - $78,000 = -$8,000

Therefore, it is short term capital loss

Sale of land which is 5 years old, therefore, it will be long term.

Sales price - Carrying value = $400,000 - $80,000 = $320,000

Long term capital gain = $320,000

Machines are old and now depreciated, thus it will be long term

Sale price - carrying value = $75,000 - $200,000 = - $125,000 Long term capital loss

Building purchased 8 years ago will be long term in nature, therefore,

Sale price - carrying adjusted basis = $425,000 - $300,000 = $125,000 Long term capital gain.

Final Answer

Truck = Short term capital loss of $8,000

Land = Long term capital gain of $320,000

Machine = Long term capital loss of $125,000

Building = Long term capital gain of $125,000

Net effect Long term capital gain of $125,000

And Short Term Capital Loss of $8,000

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Entries:                                    Debit                         Credit
Land                                      470,500
           Cash                                                              470,500
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Building                                   1,452,000
          Cash                                                         1,452,000

Land Improvement                        87,800
           Cash                                                             87,800

Expenses incurred in preparing the land for its purpose is classified under the land account. Land does not depreciate because its useful life is unidentified.

Land improvement account is used for expenses incurred to add functionality to the land and these output has useful life and is depreciated. 




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