Layout References Mailings Review View Table Design Layout PROBLEM5 Figgy starte
ID: 2598629 • Letter: L
Question
Layout References Mailings Review View Table Design Layout PROBLEM5 Figgy started his sole proprietorship business two years ago and has never sold a $1231 asset. Figgy owned each of the assets for the entire 2 years he has been in business. In the current yea he sold the following business assets: Accumulated Depreciation Der$2.000 Original Cost Gain/Loss Asset Desks Truck Equipment Building $8,000 12,000 18,000 150,000 6,000 12,000 10,000 ($2,000) (6,000) 13,500 25,000 Assuming Figgy's marginal ordinary income tax rate is 30 percent, What is the character of Figgy's tax liability? Figgy's gains and/or losses for the current year? What effect do the gains or losses have on MacBook Air 20 9Explanation / Answer
Disposal of Plant and Equipment:
Three steps are followed:
a. Depreciate asset to the date of disposal
b. Remove cost of disposed asset from the asset account and the associated accumulated depreciation (AD) must be removed from the accumulated depreciation account.
c. Difference in proceeds from the disposal of asset is to be recorded as gain or loss as applicable.
Accounting entries for recording the disposal of each asset is as under:
Sale of Desk
Cash - 4000
AD - 2000
Loss - 2000
Desk - 8000
Sale of Truck
Cash - 0
AD - 6000
Loss - 6000
Truck - 12000
Equipment
Cash - 19500
AD - 12000
Equipment - 18000
Gain - 13500
Building -
Cash - 165000
AD - 10000
Building - 150000
Gain - 25000
For tax purposes, the gains from the disposal of assets in the period can be reduced by the respective losses in that period and the net gains would be the net taxable amount and taxed at the MTR (marginal tax rate).
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