Cape Horn Company purchased a building on March 1, 1988, at acost of $4,186,000.

ID: 2433551 • Letter: C

Question

Cape Horn Company purchased a building on March 1, 1988, at acost of $4,186,000. For

financial reporting purposes, the building was being depreciatedover 372 months at $10,500

per month. The remaining $280,000 of the cost was the estimatedsalvage value. The building

was sold on October 31, 2007, for $7.2 million. An accelerateddepreciation method

allowed by the tax code was used to record depreciation for thetax return. As of October 31,

2007, the company had recorded $3.5 million of depreciation fortax purposes using an

accelerated basis. Determine (a) the amount of gain or loss thatshould be reported on the

income statement regarding the sale of the building, (b) theamount of gain or loss that

should be reported on the tax return regarding the sale of thebuilding, and (c) why a company

would use straight-line depreciation for financial reportingpurposes and accelerated

depreciation for tax purposes.

x.j5tement showing gain / loss on sale of building =================================

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