Charmine,a Single Taxpayer with No Dependents,has Already Incurred a $10,000

question 141

Essay

Charmine,a single taxpayer with no dependents,has already incurred a $10,000 § 1231 gain in 2010 and has no § 1231 lookback losses.The taxpayer purchased a business machine for $100,000 five years ago,$70,000 of depreciation has been taken on it,and the machine is now worth $90,000.How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $322,000 of taxable income which does not include a $10,000 §1231 gain or any capital gains or losses,what is her taxable income?

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Definitions:

Manufacturing Overhead

Indirect factory-related costs that are incurred when producing a product, including costs related to maintenance, utilities, and equipment depreciation.

Direct Labor-Hours

A measure of the time workers or employees directly spend producing goods or performing services.

Predetermined Overhead Rate

Calculated before the period begins, this rate is used to assign overhead costs to products or job orders based on an activity base.

Variable Manufacturing Overhead

Costs that fluctuate with the level of production output, such as raw materials and direct labor.