Dragonian Corporation Sells a Depreciable Asset

question 54

Essay

Dragonian Corporation sells a depreciable asset. Dragonian paid $50,000 for the asset. Accelerated depreciation on the asset is $12,000 up to the date of sale. Straight-line depreciation is $8,000. Determine the amount and character of the gain (loss) on the sale under each of the following assumptions:
a.The asset is equipment. Dragonian deducted the maximum depreciation and the sales price is $44,000.
b.The asset is an office building purchased in 1984. Dragonian deducted the maximum depreciation and the sales price is $54,000.
c.The asset is an office building purchased in 2006. Dragonian deducted straight-line depreciation and the sales price is $54,000.

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Definitions:

Partnership Form

A lawful business arrangement where two or more people share both the management responsibilities and the profits.

Interest Allowance

An amount allowed for interest, which can refer to the interest expense permitted on debt or the interest credited to an account; specifics can vary based on context.

Invested Capital

The total amount of money that shareholders and debt holders have invested in a company.

Capital Equity

The amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debts were paid off.