Question

During the current​ year, a corporation sells equipment for​ $300,000. The equipment cost​ $270,000 when purchased and placed in service two years ago and​ $60,000 of depreciation deductions were allowed. The results of the sale are

A. Ordinary income of $90,000
B. Sec. 1231 gain of $90,000
C. Ordinary income of $60,000 and long-term capital gain of $30,000
D. Ordinary income of $60,000 and Sec. 1231 gain of $30,000

Answer 1

B. Sec. 1231 gain of $90,000

Step-by-step explanation:

Equipment costs = $270,000

Less: Depreciation = ($30,000)

Net Book Value = $210,000

The equipment sells for $300,000. The selling amount must be compare with Net Book Value to record the gain or loss on sale of an assets. In this case, the equipment sells for $300,000 and NBV is $210,000 which equal to the gain of $90,000.