When kell computes the maximum allowable deduction

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Unformatted text preview: ns Lecture: Regulation 3 99. CPA-02202 Nov 94 #34 Page 26 On January 2, 1991, Bates Corp. purchased and placed into service 7-year MACRS tangible property costing $100,000. On December 31,1993, Bates sold the property for $102,000, after having taken $47,525 in MACRS depreciation deductions. What amount of the gain should Bates recapture as ordinary income? a. b. c. d. $0 $2,000 $47,525 $49,525 CPA-02202 Explanation Choice "c" is correct. Bates would recapture $47,525 of ordinary income. Sales price Purchase price - 1/2/91 Less: Depreciation taken Adjusted basis at date of sale Gain realized on sale $102,000 $100,000 (47,525) 52,475 49,525 Ordinary income recapture (Section 1245) Section 1231 gain 47,525 2,000 Rule: Upon disposition of tangible depreciable property used in a business, ordinary income is recognized to the extent of the lesser of the amount of gain realized or the depreciation which was allowed or allowable. Choices "a", "b", and "d" are incorrect, per the above explanation. CPA-02203 Type1 M/C 100. CPA-02203 A-D Nov 89 II #43 Corr Ans: C PM#6 R 3-99 Page 22 Kell Corp. Income statement for the year ended December 31, 1988: Sales Cost of sales Gross margin Operating expenses Operating income Other income: Gain on sale of investments Life insurance policy proceeds Dividends Total Other expense: Contributions Income before income tax $ 900,000 600,000 300,000 250,000 50,000 $ 15,000 10,000 3,000 78,000 28,000 8,000 $ 7...
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.

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