Question

in year 0, canon purchased a machine to use in its business for $56,000. in year 3, canon sold the machine for $42,000. between the date of the purchase and the date of the sale, canon depreciated the machine by $32, : loss amounts should be indicated by a minus sign. leave no answers blank. enter zero if applicable.problem 11-40 part-d (static)d. what are the amount and character of the gain or loss canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were decreased to $20,000?

Answer 1

Canon will recognize a loss of $4,000 on the sale of the machine for $20,000, which will be characterized as a capital loss and can be used to offset capital gains or carried over to other tax years.

Step-by-step explanation:

The question pertains to the calculation of gain or loss on the sale of a business asset, which is a common scenario in corporate accounting and finance.

In year 0, Canon purchased a machine for $56,000. Over the years, the machine was depreciated by $32,000. By year 3, the machine's book value was $24,000 ($56,000 purchase price minus $32,000 accumulated depreciation). Canon sold the machine for $20,000 in year 3.

To calculate the gain or loss, we subtract the sale proceeds from the machine's book value at the time of the sale. Thus, the loss Canon will recognize on the sale is $4,000 ($24,000 book value minus $20,000 sales proceeds).

Since Canon is a corporation, this loss will be a capital loss, which can be used to offset capital gains or, if unused, may be carried to other tax years. If no capital gains are available, a corporation may deduct the capital loss from its ordinary income, subject to certain limitations based on tax regulations.