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12 April, 05:40

Sumner sold equipment that it uses in its business for $30,800. Sumner bought the equipment a few years ago for $79,600 and has claimed $39,800 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

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  1. 12 April, 07:09
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    The correct answer is loss of $9,000 and section 1231.

    Explanation:

    According to the scenario, the given data are as follows:

    Purchase amount of equipment = $79,600

    Depreciation expense = $39,800

    Sold value = $30,800

    So, to calculate the amount of gain or loss we use the following formula:

    Gain or loss = Sold value - (purchase value - depreciation expense)

    = $30,800 - ($79,600 - $ 39,800)

    = $30,800 - 39,800

    = - $9,000

    As the value is in negative, it shows loss.

    Hence, It shows the loss of $9,000 under section 1231.
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