Gupta Company made the following sales of capital assets this year. $$\begin{array} { c c c }
& \text { Tax Basis } & \text { Sale Price } \
\text { Asset 1 } & \$ 60,000 & \$ 47,800 \
\text { Asset 2 } & 112,500 & 116,000 \
\text { Asset } 3 & 13,000 & 22,400
\end{array}$$ What is the effect of the three sales on Gupta's taxable income?

Question

Gupta Company made the following sales of capital assets this year. $$\begin{array} { c c c } 
& \text { Tax Basis } & \text { Sale Price } \
\text { Asset 1 } & \$ 60,000 & \$ 47,800 \
\text { Asset 2 } & 112,500 & 116,000 \
\text { Asset } 3 & 13,000 & 22,400
\end{array}$$ What is the effect of the three sales on Gupta's taxable income?

Quizplus · Accepted Answer

The sale of Asset 1 resulted in a loss of $12,200 ($60,000 - $47,800), which is not recognized for tax purposes. The sale of Asset 2 resulted in a gain of $3,500 ($116,000 - $112,500), which is recognized for tax purposes. The sale of Asset 3 resulted in a gain of $9,400 ($22,400 - $13,000), which is also recognized for tax purposes. Therefore, the net effect of the three sales on Gupta's taxable income is an increase of $700 ($3,500 + $9,400 - $12,200).

Gupta Company Made the Following Sales of Capital Assets This