Question

Sumner sold equipment that it uses in its business for $30,800. Sumner bought the equipment a few years ago for $79,600 and has claimed $39,800 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

Answer 1

The correct answer is loss of $9,000 and section 1231.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Purchase amount of equipment = $79,600

Depreciation expense = $39,800

Sold value = $30,800

So, to calculate the amount of gain or loss we use the following formula:

Gain or loss = Sold value - ( purchase value - depreciation expense)

= $30,800 - ( $79,600 - $ 39,800 )

= $30,800 - 39,800

= -$9,000

As the value is in negative, it shows loss.

Hence, It shows the loss of $9,000 under section 1231.