Question 1

Ford purchased material handling equipment for its Fusion (car) assembly line on November 19, 2018 for $45,000. It later sold the equipment on April 15, 2020 after posting a $1,000 advertisement in a manufacturing magazine with the details on the equipment for sale. The buyer paid $27,000 in cash for the handling equipment. Assume the depreciation able to be claimed for the equipment was $4,000, $6,000, and $6,000 in 2018, 2019, and 2020, respectively. Further, assume the company had no prior unrecaptured net Sec. 1231 losses in years 2015-2019.

a) Fill in the blank: Of the amount of the total gain (or loss) Ford will recognize on the sale if the amount of cash paid by the buyer changed to $50,000, $_______ should be treated as ordinary income. Note: If none of that amount should be treated as ordinary income, enter 0 without quotations.

b) Fill in the blank: Of the amount of the total gain (or loss) Ford will recognize on the sale if the amount of cash paid by the buyer changed to $50,000, $_______ should be treated as long-term capital gain.

Note: If none of that amount should be treated as long-term capital gain, enter 0 without quotations.

Question 2

Spaulding sold a building and the land on which the building sits to another company for $300,000 in 2020, where $100,000 of the purchase price was attributed to the buildings value and $200,000 of the sales price was attributed to the lands value. Spaulding had had the building constructed in 2014 at a cost of $225,000. Spaulding had purchased the land 11 months before constructing the building for $170,000. As of the date of sale, Spaulding had claimed $75,000 of depreciation expense on the building. The building and land were the only two assets the company sold during the year. Further, assume the company had no prior unrecaptured net Sec. 1231 losses in years 2015-2019.

a) Fill in the blank: The total amount of gain (or loss) on the sale overall in 2020 is $_______. Reminder: If the amount represents gain, this is entered as a positive value (e.g. syntax: a $5,000 gain amount should be entered as 5000) whereas if the amount represents a loss this is entered as a negative value (e.g. syntax: a $5,000 loss amount should be entered as -5000). What is the character of the gain (or loss) from the sale in 2020? If there is more than one type of character, choose the primary character for the gain (loss).