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368 part 3 figure 85 long term investment decisions

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Unformatted text preview: erefore, this distinction is made throughout the text discussions. 368 PART 3 FIGURE 8.5 Long-Term Investment Decisions Taxable Income from Sale of Asset Taxable income from sale of asset at various sale prices for Hudson Industries Sale Price $110,000 Initial Purchase Price $110,000 $100,000 $70,000 Book Value $48,000 $70,000 $48,000 $30,000 Capital Gain ($10,000) Recaptured Depreciation ($52,000) Recaptured Depreciation ($22,000) $30,000 No Gain or Loss Loss ($18,000) $0 sale price in Figure 8.5. Because no tax results from selling an asset for its book value, there is no tax effect on the initial investment in the new asset. The sale of the asset for less than its book value If Hudson sells the asset for $30,000, it experiences a loss of $18,000 ($48,000 $30,000), as shown under the $30,000 sale price in Figure 8.5. If this is a depreciable asset used in the business, the loss may be used to offset ordinary operating income. If the asset is not depreciable or is not used in the business, the...
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