Answered: dan purchased machinery (7 yr.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

dan purchased machinery (7 yr. property) to use in her business on 9/1/18 at a cost of $ 40,000. This was the only property placed in service in 2018. On 3/1/20 dan sold this equipment for $ 44,000. Answer each part below as follows:

1. What is dan’s recognized gain on the sale of this asset in 2020?

1. 2020

2. If dan has a 37% ordinary income tax marginal rate and a 20% net capital gain tax marginal rate, How much additional tax will dan pay on the gain in part 2?

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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