Q.1Joan sold depreciable property used in her business to Irene for $325,000 cash plus a ten yearbond par value $200,000, and currently trading on the NYSE for $196,000. The property costJoan $605,000 not including the $27,000 of capital improvements she made. During Joan'sownership she erroneously deducted $315,000 of depreciation on the property and nodepreciation on the improvements. The correct amount of depreciation that should have beendeducted was $420,000 on the property and $12,000 on the improvementsDetermine the amount of recognized gain or loss. Explain whether the gain or loss iscapital or ordinary and cite the relevant code section(s) in support of your calculation.Discuss the various components of how you determined your answer.

Recognized Gain/loss on asset = 325,000+196,000-605,000-27,000+315,000 = 204,000

Determine the amount of recognized gain or loss. Explain whether the gain or loss is capital or ordinary and cite the relevant code section(s) in support of your calculation. Discuss the various components of how you determined your answer.

Determine the amount of recognized gain or loss. Explain whether the gain or loss is capital or ordinary and cite the relevant code section(s) in support of your calculation. Discuss the various components of how you determined your answer.

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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Q.1
Joan sold depreciable property used in her business to Irene for $325,000 cash plus a ten year
bond par value $200,000, and currently trading on the NYSE for $196,000. The property cost
Joan $605,000 not including the $27,000 of capital improvements she made. During Joan's
ownership she erroneously deducted $315,000 of depreciation on the property and no
depreciation on the improvements. The correct amount of depreciation that should have been
deducted was $420,000 on the property and $12,000 on the improvements
Determine the amount of recognized gain or loss. Explain whether the gain or loss is
capital or ordinary and cite the relevant code section(s) in support of your calculation.
Discuss the various components of how you determined your answer.

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