Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. Thi

Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. This year, she sells the following long-term assets used in her business:

Asset Sales Price Cost Accumulated
Depreciation
  Building $230,000      $200,000     $52,000      
  Equipment 80,000      148,000     23,000      

Lily's taxable income before these transactions is $160,500.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Taxable Income=

Tax Liability=

Explanation / Answer

Gain/ loss on building = 230000-(200000-52000) = $ 82000

Gain /(loss) on equipment = 80000 - (148000-23000) = (45000)

Net gain / (loss) = $ 37000

Taxable income before transaction = $ 160500

Gain on transaction = $ 37000

Taxable income = $ 197500

Tax Liability

Ordinary income $ 160500

(160500 - 85650)*28%+17442 = $ 38400

Capital gain 37000*25% = 9250

Total liability = $ 47650

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