Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2019, she sells the following long-term assets used in her business:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$230,000	$200,000	$52,000
Equipment	80,000	148,000	23,000

Lily's taxable income before these transactions is $190,500.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

    

Answer 1

Asset selling price building gain or loss

= $230,000 - ($200,000 - $52,000)

= $230,000 - 148,000

= $ 82,000

Asset selling price gain or loss on Equipment

= 80,000 - (148,000 - 23000)

=$80,000 - 125,000

=$45,000

Calculating net gain or loss

=$ 82,000 - $45,000

=$37,000.

Lily's taxable income before these transactions is = $190,500.

Calculating total taxable income

= $37,000. + $190,500.

=$227,500

Calculating tax liability

=($46,278.74 +((190,500 - 190,150 x 33%)) + (45,000 x25%)

=46,278.74 + 115.5+11,250

= $57,644.24

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