Newman Corp. sold a machine with an orginal cost of $50,000 and a basis of $20,000...
Newman Corp. sold a machine with an orginal cost of $50,000 and a basis of $20,000 for $14,000. What is the nature of the gain or loss? Explain.
Homework Answers
Answer -
Step - (1) - Information Given -
Newman Corp. sold a machine with an original cost of $50000 and a basis of $20000 for $14000.
.
Step - (2) - Nature of Gain or Loss -
Loss on sale of machine = Sale price of machine - basis of machine
= $14000 - $20000
= -$6000. Ordinary loss
Loss of -$6000 is treated as Ordinary loss and not a capital loss because up to the amount of depreciation allowance of ($50000 - $20000) = $30000, either loss or gain on sale will be treated as Ordinary by Nature.
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