In 1988,Artima Corporation (a C corporation)purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total MACRS depreciation allowed for the building was $390,000.This is the only business asset sold by the corporation over the past six years.As result of the sale,how much ordinary gain will Artima Corporation report?
A)$390,000
B)$540,000
C)$0
D)$78,000

Question

Quizplus · Accepted Answer

The calculation for the ordinary gain reported by Artima Corporation is:
Selling price of building ($550,000) - Adjusted Basis of building ($400,000 - $390,000) = $160,000
Since Artima Corporation is a C corporation, the ordinary gain will be taxed at a flat rate of 21%. Therefore, the amount of ordinary gain reported by Artima Corporation will be $160,000 x 21% = $33,600. However, since the MACRS depreciation was already taxed at ordinary rates during the years it was taken, the remaining $78,000 of depreciation is taxed at a maximum rate of 25%. Therefore, the total tax on the gain will be $33,600 + ($78,000 x 25%) = $54,600.

In 1988,Artima Corporation (A C Corporation)purchased an Office Building for $400,000