Eleven years ago, Lynn Inc. purchased a warehouse for $315,000. This year, the c

Question

Eleven years ago, Lynn Inc. purchased a warehouse for $315,000. This year, the corporation sold the warehouse to Firm D for $80,000 cash and D's assumption of a $225,000 mortgage. Through date of sale, Lynn deducted $92,300 straight-line depreciation on the warehouse. a. Compute Lynn's gain recognized on sale of the warehouse b. How much of this recognized gain is treated as capital gain and how much is ordinary? c. How would your answers change if Lynn is a noncorporate business? Complete this question by entering your answers in the tabs below Required A Required B Required C How would your answers change if Lynn is a noncorporate business? (Leave no cell blank. Enter "O" for cells that do not have an amount.) Realized and recognized gain Capital gain Ordinary gain

Explanation / Answer

1. Lyns gain on recognised sale of warehouse =

Actual Cost at the date when the warehouse sold to The Firm D =

$3,15,000 - $92,300

the Actual Cost at the date of sale = $2,22,700

but Lynn Incorporation sold to firm D = $80,000 + $2,25,000

Sales Value = $3,05,000

Gain on sale = $3,05,000 - $2,22,700

Gain on Sale = $82,300

B.

Capital gain are not occur in this equation. The amount which are calculated above i.e. $82,300 are called as balancing charge. If sale are made above $3,15,000 then the amount over and above $3,15,000 are called capital gain.

C.

if lynn incorporation do business on this place, then he can earn profit from her business. This is the ordinary gain from her business.

Hope it helps you

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