What is the proper classification of the gain ? Compact Corporation purchased $90,000 of five-year equipment onMarch 10, 2015, and elected to expense $20,000 of the cost underSection 179. Compact sells the equipment on July 30, 2016, for $95,000.Compact properly deducted $25,200 under MACRS depreciation for2015 and 2016. What is the proper classification of the gain?A. Section 1245 ordinary income is $45,200; Section 1231 gain is $5,000.B. Section 1245 ordinary income is $50,200; Section 1231 gain is $0.C. Section 1245 ordinary income is $5,000; Section 1231 gain is $45,200.D. Section 1245 ordinary income is $0; Section 1231 gain is $50,200.

Step 1: Define Taxable Gains on the Sale of a Business AssetThe tax treatment of the gains or losses…

Answered: Compact Corporation purchased $90,000…

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions

Section: Chapter Questions

Problem 32CE

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At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial reporting purposes, the asset has a 4-year life with no residual value and is depreciated by the straight-line method beginning in 2019. For tax purposes, the asset is depreciated under MACRS using a 5-year recovery period. Prior to 2019, Conley had no deferred tax liability or asset. The difference between depreciation for financial reporting purposes and income tax purposes is the only temporary difference between pretax financial income and taxable income. The current income tax rate is 30%, and no change in the tax rate has been enacted for future years. In 2019 and 2020, taxable income will be higher or lower than financial income by what amount?
Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year. Turnip uses differing depreciation methods for financial reporting and income tax purposes. The depreciation expense during the current year for financial reporting is 1,000 and for income tax purposes is 2,000. Turnip is subject to a 30% enacted future tax rate. Prepare a schedule to compute Turnips (a) ending future taxable amount, (b) ending deferred tax liability, and (c) change in deferred tax liability (deferred tax expense) for the current year.
On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.
At the end of 2020, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2015 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2018 was understated by 110,000, and depreciation for 2019 was understated by 90,000. What would be the consequences of correcting for the misclassification of the property cost? a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory. b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2019.
Bliss Company owns an asset with an estimated life of 15 years and an estimated residual value of zero. Bliss uses the straight -line method of depreciation. At the beginning of the sixth year, the assets book value is 200,000 and Bliss changes the estimate of the assets life to 25 years, so that 20 years now remain in the assets life. Explain how this change will be accounted for in Blisss financial statements, and compute the current and future annual depreciation expense.
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Copper Corporation sold machinery for $47,000 on December 31, 2021. The machinery had been purchased on January 2, 2018, for $60,000 and had an adjusted basis of $41,000 at the date of the sale. For 2021, what should Copper report? a.Ordinary income of $6,000. b.A § 1231 gain of $6,000. c.A § 1231 gain of $3,000 and $3,000 of ordinary income. d.A § 1231 gain of $6,000 and $3,000 of ordinary income.
Elixir inc purchased equipement in 2018 for $50,000 with no residual value. On December 31, 2020 accumulated depreciation using the straight-line method for financial reporting was 15,000. for tax purposes elixir uses MACRS depreciation resulting in $35,600 in accumulated depreciation for tax purposes onDecember 31, 2020. taxable income was $100,000 for 2020 and the companies tax rate was 25%. determine the GAAP basis of equipment on December 30, 2020. determine the tax basis of equipment on December 30 2020. Assuming a different tax liability balance of 4900 on December 31, 2019 report income tax expense for 2020.
(Book vs. Tax (MACRS) Depreciation) Shimei Inc. purchased computer equipment on March 1, 2017, for $31,000. The computer equipment has a useful life of 10 years and a salvage value of $1,000. For tax purposes, the MACRS class life is 5 years.Instructions(a) Assuming that the company uses the straight-line method for book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2017 and (2) the tax return for 2017?(b) Assuming that the company uses the double-declining-balance method for both book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2017 and (2) the tax return for 2017?(c) Why is depreciation for tax purposes different from depreciation for book purposes even if the company uses the same depreciation method to compute them both?
ABC Inc. acquired the following five-year assets in 2021: a. Asset A - January 10 - $106,000 b. Asset B - July 5 - $70,000 c. Asset C - September 15 - $2,424,000 ABC, Inc. elects the maximum §179 expense deduction (assume sufficient income to absorb the §179 deduction in 2021) and no bonus depreciation. What is the depreciation expense in 2022 with respect to these assets?

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