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23 August, 08:18

Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2019. The equipment was purchased on January 4, 2018 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko?

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  1. 23 August, 11:34
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    as per Section 1231, gain = $2,004

    as per Section 1245 here ordinary income = $3,855

    Explanation:

    given data

    Sale value = $14,853

    Original cost = $12,849

    Depreciation = $3,855

    solution

    we know that by provisions when sale value is more than original cost

    than there excess amount will be treated as the section 1231 capital gain

    and that gain up to depreciation amount will be treated as ordinary income under the section 1245

    so here we get here first total profit that is

    total profit = $14,853 - $12,849 - $3,855

    total profit = $5,859

    so as per Section 1231

    gain = $14,853 - 12,849

    gain = $2,004

    and

    as per Section 1245

    here ordinary income = $3,855
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