Question

Tobo Company buys and sells computers. Any gains from the sale of the computer are

ordinary gains.
Masahiko sells his personal computer at a $500 gain. Masahiko's gain is
a capital gain.
Picco Company has accounts receivable of $50,000. Because Picco needs immediate cash, it sells the receivables for $40,000 to a financial institution. If Picco is a cash basis taxpayer, it has $40,000 of ordinary income

Answer 1

To determine if the company is making a profit or a loss when selling the computers for $500, we need to compare the total revenue to the total cost. If the selling price is $500, the company is making a profit. The same principle applies when selling the computers for $300 - the company is making a loss.

Step-by-step explanation:

To determine if the company is making a profit or a loss when selling the computers for $500, we need to compare the total revenue to the total cost. If the selling price is $500, we can assume that it covers the average variable cost (AVC) and part of the average fixed cost (AFC). Therefore, the company is making a profit. We can illustrate this on a graph by plotting the average cost (AC) curve, marginal cost (MC) curve, and average variable cost (AVC) curve. The profit can be calculated by subtracting the total cost from the total revenue. The same principle applies when selling the computers for $300. If the selling price is below the average variable cost (AVC), the company is making a loss. Again, we can illustrate this on a graph by plotting the AC, MC, and AVC curves. The loss can be calculated by subtracting the total cost from the total revenue.