McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 39

What book-tax differences in year 1 and year 2 associated with its capital gains and losses would DEF Inc.report in the following alternative scenarios? Identify each book-tax difference as favorable or unfavorable and as permanent or temporary
a.In year 1, DEF recognized a loss of $15,000 on land that it had held for investment.In year 1, it also recognized a $30,000 gain on equipment it had purchased a few years ago.The equipment sold for $50,000 and had an adjusted basis of $20,000.DEF had deducted $40,000 of depreciation on the equipment.In year 2, DEF recognized a capital loss of $2,000.b.In year 1, DEF recognized a loss of $15,000 on land that it had held for investment.It also recognized a $20,000 gain on equipment it had purchased a few years ago.The equipment sold for $50,000 and had an adjusted basis of $30,000.DEF had deducted $15,000 of tax depreciation on the equipment.