Brandon,an Individual,began Business Four Years Ago and Has Sold §1231

question 59

Multiple Choice

Brandon,an individual,began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years.Brandon owned each of the assets for several years.In the current year,Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent,what effect do the gains and losses have on Brandon's tax liability?
Use dividends and capital gains tax rates for reference.

• A)$25,000 ordinary income and $8,000 tax liability.
• B)$25,000 §1231 gain and $3,750 tax liability.
• C)$13,000 §1231 gain,$12,000 ordinary income,and $5,790 tax liability.
• D)$12,000 §1231 gain,$13,000 ordinary income,and $5,960 tax liability.
• E)None of the choices are correct.

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Definitions:

Net Sales

Total sales revenue minus returns, allowances, and discounts.

Gross Profit

Gross profit refers to the difference between revenue and the cost of goods sold before administrative, overhead, and other expenses.

Receivables Turnover Ratio

A financial metric that measures a company's effectiveness in extending credit and collecting debts, calculated by dividing net credit sales by the average accounts receivable.

Net Sales

The amount of sales revenue remaining after deducting returns, allowances for damaged or missing goods, and discounts.