Larry Corporation purchased a new precision casting machine for its manufacturing facility. The machine cost $2 million, and another $150,000 was spent on installation. The machine was placed in service in June 2009. The old machine, which was placed in service in 2003, was sold in 2009 to an unrelated party for a $250,000 financial accounting profit. What asset disposition and capital recovery issues do you need to address when removing the old machine from, and placing the new machine on, the financial accounting and tax books and in calculating the 2009 tax depreciation?

The following tax issues need to be addressed regarding Larry's asset acquisition and disposition (assuming the corporation does not qualify for the small business exemption):

1. Old machine??Discuss at least 2 issues

2. New machine??Discuss at least 2 issues

3. What cost must be capitalized? Different capital recovery calculations must be made for taxable income, AMTI/ACE, and E&P purposes. Should the $250,000 financial accounting profit be adjusted to determine the gain recognized for taxable income, AMTI, ACE, and E&P purposes with respect to the old machine.