Homework Problem 5-6 - If she makes an election under ITA...

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Solution to Problem 5-6 CEC Account In July 2008, Ms. Landau acquires a business. Her payment includes $200,000 for goodwill and an unlimited life franchise with a FMV of $125,000. Acquisition (3/4)($200,000 + $125,000) $243,750 2008 Amortization of CEC (7%) ( 17,063 ) Balance January 1, 2009 $226,687 2009 Amortization of CEC (7%) ( 15,868 ) Balance January 1, 2009 $210,819
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In 2010, Ms. Landau sold the unlimited life franchise for $175,000. If she makes no election : Balance January 1, 2010 $210,819 Proceeds of Sale (3/4)($175,000) (131,250 ) Balance in the CEC Account $ 79,569 She will continue to amortize this balance
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Unformatted text preview: If she makes an election under ITA 14(1.01) : The franchise is specifically identified and removed from the CEC account Balance January 1, 2010 $210,819 Remove Franchise Cost (3/4)($125,000) ( 93,750 ) Balance in the CEC Account $117,069 Because the franchise is sold: Proceeds of Disposition $175,000 Cost of Franchise (125,000 ) Capital Gain ` $ 50,000 Taxable Capital Gain $25,000 Ms. Landau would use the election in order to generate capital gains against which to offset capital losses....
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Homework Problem 5-6 - If she makes an election under ITA...

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