Joan bought a business machine for $15,000.In a later year,she sold the machine for $12,800 when the total allowable depreciation is $8,500.The depreciation actually taken on the tax returns totaled $8,000.Joan must recognize a gain (or loss)of
A)no gain or loss.
B)($3,200).
C)$6,800.
D)$6,300.

Question

Quizplus · Accepted Answer

Joan's adjusted basis in the machine is the original cost ($15,000) minus the depreciation actually taken ($8,000), which equals $7,000. She sold it for $12,800, resulting in a gain of $12,800 - $7,000 = $5,800. However, the total allowable depreciation was $8,500, so the gain is $12,800 - ($15,000 - $8,500) = $6,300.

Joan Bought a Business Machine for $15,000