Cape Horn Company purchased a building on March 1, 1988, at a cost of $4,186,000. For financial reporting purposes, the building was being depreciated over 372 months at $10,500 per month. The remaining $280,000 of the cost was the estimated salvage value. The building was sold on October 31, 2007, for $7.2 million. An accelerated depreciation method allowed by the tax code was used to record depreciation for the tax return. As of October 31, 2007, the company had recorded $3.5 million of depreciation for tax purposes using an accelerated basis. Determine: a) the amount of gain or loss that should be reported on the income statement regarding the sale of the building. b) the amount of gain or loss that should be reported on the tax return regarding the sale of the building.
Cape Horn Company purchased a building on March 1, 1988, at a cost of $4,186,000. For financial reporting purposes, the building was being depreciated over 372 months at $10,500 per month. The remaining $280,000 of the cost was the estimated salvage value. The building was sold on October 31, 2007, for $7.2 million. An accelerated depreciation method allowed by the tax code was used to record depreciation for the tax return. As of October 31, 2007, the company had recorded $3.5 million of depreciation for tax purposes using an accelerated basis. Determine: a) the amount of gain or loss that should be reported on the income statement regarding the sale of the building. b) the amount of gain or loss that should be reported on the tax return regarding the sale of the building.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cape Horn Company purchased a building on March
1, 1988, at a cost of $4,186,000. For financial
reporting purposes, the building was being
depreciated over 372 months at $10,500 per month.
The remaining $280,000 of the cost was the
estimated salvage value. The building was sold on
October 31, 2007, for $7.2 million. An accelerated
depreciation method allowed by the tax code was
used to record depreciation for the tax return. As of
October 31, 2007, the company had recorded $3.5
million of depreciation for tax purposes using an
accelerated basis.
Determine:
a) the amount of gain or loss that should be reported
on the income statement regarding the sale of the
building.
b) the amount of gain or loss that should be reported
on the tax return regarding the sale of the building.
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