PROBLEM 3 (30 points)

TRace manufactures and distributes high-tech hiking 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.

Part 1

Determine the gain/loss realized and recognized in the current year for each of these events. Also, determine whether the gain/loss recognized is 1231, capital, or ordinary.

1. TRace sold a machine that it used to make computerized gadgets for $27,300 cash. It originally bought the machine for $19,200 three years ago and has taken $8,000 depreciation.
2. TRace held stock in XYZ Corp., which had a value of $12,000 at the beginning of the year. That same stock had a value of $15,230 at the end of the year.
3. TRace sold some of its inventory for $7,000 cash. This inventory had a basis of $5,000.
4. TRace sold an office building for $75,000 in cash. It originally bought the office building seven years ago for $62,000 and has taken $15,000 in depreciation.
5. TRace sold another machine for $7,300. It originally purchased this machine six months ago for $9,000 and has claimed $830 in depreciation expense against the asset.

Realized Gain/Loss	Recognized Gain/Loss	Character of Gain/Loss
A
B
C
D
E

Part 2

From the recognized gains/losses determined in part 1, determine the net 1231 gain/loss and the net ordinary gain/loss TRace will recognize on its tax return.

Net 1231 Gain/Loss	Net Ordinary inc/loss