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

question 15

Multiple Choice

Brandon,an individual,began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years.Brandon owned each of the assets for several years.In the current year,Brandon sold the following business assets: $\begin{array}{lccc}&&\text { Accumulated }\\\text {Asset}&\text { Original Cost } & \text { Depreciation } & {\text { Gain/Loss }} \\\text {Machinery}&\$ 30,000& \$7,000 & \$ 10,000 \\\text {Land}&40,000 & 0 & 20,000 \\\text {Building}&90,000 & 20000 & (5,000) \end{array}$ 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,$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:

Actual Manufacturing Overhead Costs

The real costs incurred from indirect manufacturing expenses such as utilities, rent, and salaries not directly tied to production.

Specific Job

A particular task or project within a business that requires specific skills or expertise, often related to job costing in accounting.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated by dividing estimated overhead costs by an allocation base, such as direct labor hours.

Estimated Annual Overhead Costs

An approximation of the indirect costs that a business expects to incur over a year in its operations.