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Moab Inc. manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during the year. (Do not round intermediate computations.)

  

a Moab Inc. sold a machine that it used to make computerized gadgets for $28,000 cash. It originally bought the machine for $19,550 three years ago and has taken $8,175 depreciation.

b Moab Inc. held stock in ABC Corp. which had a value of $12,280 at the beginning of the year. That same stock had a value of $15,650 at the end of the year.

c Moab Inc. sold some of its inventory for $7,560 cash. This inventory had a basis of $5,630.

d Moab Inc. disposed of an office building with a fair market value of $80,250 for another office building with a fair market value of $58,500 and $21,750 in cash. It originally bought the office building seven years ago for $64,100 and has taken $16,050 in depreciation.

e Moab Inc. sold some land held for investment for $28,700. It originally bought the land for $32,840 two years ago.

f Moab Inc. sold another machine for a note payable in four annual installments of $12,525. The first payment was received in the current year. It originally bought the machine two years ago for $32,700 and has claimed $9,210 in depreciation expense against the machine.

g Moab Inc. sold stock it held for eight years for $2,925. It originally purchased the stock for $2,240.

h Moab Inc. sold another machine for $7,790. It originally purchased this machine six months ago for $9,700 and has claimed $1,075 in depreciation expense against the asset.

1. Determine the gain/loss realized and recognized in the current year for each of the events provided above. Also determine whether the gain/loss recognized is §1231, capital, or ordinary. (Do not round intermediate computations.)

2. From the recognized gains/losses determined in part (1), determine the net §1231 gain/loss and the net ordinary gain/loss Moab will recognize on its tax return. Moab Inc. also has $2,350 of nonrecaptured net §1231 losses from previous years. (Do not round intermediate computations.)

Asset Realized Gain/(Loss) Recognized Gain/(Loss) §1245 Ordinary Income §291 Ordinary Income §1231 Gain/(Loss) Ordinary Income/(Loss) Capital Gain/(Loss) 1a 1b 1c 1d 1e 1f 1g 1h Totals $0 $0 $0 $0 $0 $0 $0

Explanation / Answer

$3,490 §291 recapture

$18,260 §1231 gain

(kindly confirm)

*Moab recognises $21,750 gain due to extra cash recieved in kind like exchange.the remaining gain is deferred

**$13,560 recognised gain consists of $9,210 depriciation recapture(required to be recognised in year of sale and not eligible for installment sale treatment) and $4350($17400 remaining gain/ $50,100 amount realised x $12,525 cash recieved in year of sale)

2.

31,060

2.§1231 loss

ASSET REALISED GAIN/LOSS RECOGNISED GAIN/LOSS CHARACTER 1a $16,625(28000-(19,550-8,175)) $16,625 $8,175 §1245 recapture $8,450 §1231 gain 1b 0 0 no realization (it is just valuation of stock at end of year) 1c $1,930 $1,930 ordinary income 1d $32,200 $21,750*

$3,490 §291 recapture

$18,260 §1231 gain

(kindly confirm)

1e ($4,140) ($4,140) long term capital loss 1f $26,610 $13,560** $9,210 §1245 recapture $4,350 §1231 gain 1g $685 $685 long term capital gain 1h ($835) ($835) ordinary loss; not held for more than 12 months

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