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5 May, 19:07

Determine the amount realized and the character by Solar Corporation on the sale of the following equipment: PV1 purchased in 2012 for $10,000 and sold for $8,000. PV1 has an adjusted basis of $5,000. PV2 purchased in 2013 for $25,000 and sold for $16,000. PV2 has an adjusted basis of $18,000. Assume Solar Corporation had ordinary income of $35,000 from all other sources and no other asset sales or transactions. How does the sale of PV1 and PV2 affect ordinary income?

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  1. 5 May, 20:28
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    The effect on the sale of PV1 would be $3,000 and on PV2 it is $1,500

    Explanation:

    For computing the effect on the ordinary income, we have to do the following adjustment which is shown below:

    PV1 = Sale price-adjusted basis

    = $8,000 - $5,000

    = $3,000

    The $3,000 represent the short term capital gain, and it is a short term capital gain because the equipment is sold in less than 1 year

    PV2 = Sale price-adjusted basis

    = $16,000 - $18,000

    = - $2,000

    The $ - 2,000 represents the long term capital loss, and it is a long term capital loss because the equipment is sold in more than 1 year

    So, the effect on the sale of PV1 would be $3,000 and on PV2 it is $1,500 because the deduction is allowed to a maximum of $1,500
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