Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago.As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note.Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment.How much of Lopez Corporation's realized gain on the sale will be a net Section 1231 gain?

Question

Quizplus · Accepted Answer

The realized gain is calculated as the amount realized ($80,000 cash + $100,000 note + $150,000 assumed note = $330,000) minus the adjusted basis ($300,000 cost - $187,500 accumulated depreciation = $112,500). The realized gain is $330,000 - $112,500 = $217,500. The net Section 1231 gain is the realized gain minus any depreciation recapture, which is $217,500 - $187,500 = $30,000.

Lopez Corporation Sold Equipment That It Had Purchased for $300,000