The Jordan Corp (C Corporation), a calendar year taxpayer, sold a piece of equipment, a piece of machinery, and a warehouse on March 30, 2021. Data on these disposals are as follows: The equipment was purchased on February 20, 2016 for $50,000. It was sold for $60,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $45,538. The machinery was purchased on February 7, 2017 for
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Jordan Corp (C Corporation), a calendar year taxpayer, sold a piece of equipment, a piece of machinery, and a warehouse on March 30, 2021. Data on these disposals are as follows:
- The equipment was purchased on February 20, 2016 for $50,000. It was sold for $60,000 cash. After calculating 2021
depreciation , accumulated depreciation totaled $45,538. - The machinery was purchased on February 7, 2017 for $130,000. It was sold for $30,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $112,596.
- The building was purchased on March 1, 1991 for $2,000,000. It was sold for $1,325,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $1,589,743. The building had a mortgage with a balance of $200,000 that the buyer assumed from the Jordan Corp.
For each asset,
- Calculate the amount of the realized gain/loss
- Calculate the amount of the recognized gain/loss
- Calculate the amount and type of depreciation recapture, if any
- Calculate the amount of §1231 gain/loss, if any
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