Question

Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp., at fair market value. The fair market value of the building was determined to be $325,000; Luke built the building several years ago at a cost of $200,000. Luke had claimed $45,000 of depreciation expense on the building. The fair market value of the land was determined to be $210,000 at the time of the sale; Luke purchased the land many years ago for $130,000. Luke's brother will use the building in his business.

Required:
a. What is the amount and character of Luke's recognized gain or loss on the building?
b. What is the amount and character of Luke's recognized gain or loss on the land?

Answer 1

(a) The amount and character of Luke's recognized gain is $170,000

(b) The amount and character of Luke's recognized gain is $80,000

Step-by-step explanation:

(a) In order to calculate the amount and character of Luke's recognized gain or loss on the building we would have to make the following calculation:

Amount of gain or loss on building= (fair market value-cost of building)+depreciation expense

Amount of gain or loss on building= ($325,000-$200,000) + $45,000 = $170,000

b. In order to calculate the amount and character of Luke's recognized gain or loss on the land we would have to make the following calculation:

Amount of gain or loss on land=(fair market value-purchase)

Amount of gain or loss on land= ($210,000-$130,000) = $80,000

In both the since interest is not considered the character is Capital gain

Answer 2

a. The amount and character of Luke's recognized gain is $170,000

b. The amount and character of Luke's recognized gain is $80,000

Step-by-step explanation:

a. In order to calculate the amount and character of Luke's recognized gain or loss on the building we would have to make the following calculation:

amount of gain or loss on building=(fair market value-cost of builing)+depreciation expense

amount of gain or loss on building= ($325,000-$200,000) + $45,000 = $170,000

b. In order to calculate the amount and character of Luke's recognized gain or loss on the land we would have to make the following calculation:

amount of gain or loss on land=(fair market value-purchase)

amount of gain or loss on land= ($210,000-$130,000) = $80,000