# Taxation

Submitted By littleomao
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Chapter 8 Property Dispositions

Questions and Problems for Discussion

1. a. Section 1231 asset.

b. Capital asset.

c. Section 1231 asset.

d. Capital asset.

e. Noncapital asset.

f. Capital asset.

g. Capital asset.

h. Section 1231 asset.

Application Problems

2. a. \$50,000 cost – \$37,200 acc. book depr. = \$12,800 book basis \$50,000 cost– \$41,000 acc. book depr. = \$9,000 tax basis

b. \$41,000 tax depr. – \$37,200 book depr. = \$3,800 excess tax depreciation \$3,800 favorable difference × 35% = \$1,330 deferred tax liability

c. \$14,750 amount realized – \$12,800 book basis = \$1,950 book gain \$14,750 amount realized – \$9,000 tax basis = \$5,750 tax gain

d. The \$3,800 excess of tax gain over book gain is an unfavorable difference and a reversal of the favorable difference represented by the excess tax depreciation through date of sale. Therefore, this book tax difference results in a \$1,330 reduction in the deferred tax liability computed in b.
7. a. Amount realized on sale: Cash \$75,000 Purchaser’s note 675,000 \$750,000 Adjusted basis (535,000) Gain realized on sale \$215,000

b. \$215,000 gain recognized. TPW’s tax basis in the note at the end of year equals the note’s \$641,250 face value (\$675,000 original face value – \$33,750 August principal payment).

c. \$215,000 gain realized ÷ \$750,000 contract price = 28.67% gross profit percentage.

Cash received in year of sale: Cash at closing \$75,000 August principal payment 33,750 \$108,750 .2867 Gain recognized \$31,179

Face value of note at end of year \$641,250 Deferred gain: Realized gain \$215,000 Recognized gain (31,179) (183,821)...

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