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This year, Sigma Inc. generated $633,000 income from its routine business operations. In addition, the corporation...

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Accounting

This year, Sigma Inc. generated $633,000 income from its routinebusiness operations. In addition, the corporation sold thefollowing assets, all of which were held for more than 12months.

InitialBasisAcc.Depr.*Sale Price
Marketable securities$183,200$0$85,250
Production equipment108,40086,72035,500
Business realty:
Land222,7500233,250
Building287,00086,100298,000


*Through date of sale.

  1. Compute Sigma’s taxable income assuming that it used thestraight-line method to calculate depreciation on the building andhas no nonrecaptured Section 1231 losses.
  2. Recompute taxable income assuming that Sigma sold thesecurities for $186,400 rather than $85,250.

Answer & Explanation Solved by verified expert
3.9 Ratings (532 Votes)

Part A

Amount realized Adjusted basis realized gain /(loss) ordinary gain/(loss) section 1231gain/(loss)
Production equipment 35500 21680 (108400-86720) 13820 13820
Business Land 233250 222750 10500 10500
Business building 298000 200900 (287000-86100) 97100 19420 (97100*20%) 77680 (97100*80%)
33240 88180
Net income from operations 633000
Ordinary income from business assets 33240
Section 1231 gain (treated as capital gain) 88180
Sale of marketable securities :
Amount realized 85250
Basis (183200)
Realized loss (97950)
Deductible loss limited to section 1231 gain (88180)
Taxable income 666240

Part B

Net income from operations 633000
Ordinary income from business assets 33240
Section 1231 gain 88180
Sale of marketable securities:
Amount realized 186400
Basis (183200)
Capital gain 3200
Taxable income 757620

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