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Moab Inc. manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during the year. (Do not round intermediate computations.)

  

a Moab Inc. sold a machine that it used to make computerized gadgets for $28,000 cash. It originally bought the machine for $19,550 three years ago and has taken $8,175 depreciation.

b Moab Inc. held stock in ABC Corp. which had a value of $12,280 at the beginning of the year. That same stock had a value of $15,650 at the end of the year.

c Moab Inc. sold some of its inventory for $7,560 cash. This inventory had a basis of $5,630.

d Moab Inc. disposed of an office building with a fair market value of $80,250 for another office building with a fair market value of $58,500 and $21,750 in cash. It originally bought the office building seven years ago for $64,100 and has taken $16,050 in depreciation.

e Moab Inc. sold some land held for investment for $28,700. It originally bought the land for $32,840 two years ago.

f Moab Inc. sold another machine for a note payable in four annual installments of $12,525. The first payment was received in the current year. It originally bought the machine two years ago for $32,700 and has claimed $9,210 in depreciation expense against the machine.

g Moab Inc. sold stock it held for eight years for $2,925. It originally purchased the stock for $2,240.

h Moab Inc. sold another machine for $7,790. It originally purchased this machine six months ago for $9,700 and has claimed $1,075 in depreciation expense against the asset.

1. Determine the gain/loss realized and recognized in the current year for each of the events provided above. Also determine whether the gain/loss recognized is §1231, capital, or ordinary. (Do not round intermediate computations.)

Asset	Realized Gain/(Loss)	Recognized Gain/(Loss)	§1245 Ordinary Income	§291 Ordinary Income	§1231 Gain/(Loss)	Ordinary Income/(Loss)	Capital Gain/(Loss)
1a
1b
1c
1d
1e
1f
1g
1h
Totals	$0	$0	$0	$0	$0	$0	$0

2. From the recognized gains/losses determined in part (1), determine the net §1231 gain/loss and the net ordinary gain/loss Moab will recognize on its tax return. Moab Inc. also has $2,350 of nonrecaptured net §1231 losses from previous years. (Do not round intermediate computations.)

§1231 Netting Process:
§1231 gain
§1231 loss
Net §1231 gain
Nonrecaptured §1231 losses
Net §1231 gain
Ordinary Income:
§1245 recapture
§291 recapture
Ordinary income
Ordinary loss
Ordinary income from §1231 netting
Total
Capital Gains and Losses:
Capital gain from §1231 netting
Capital loss
Net capital gain

Answer 1

ASSET	REALISED GAIN/LOSS	RECOGNISED GAIN/LOSS	CHARACTER
1a	$16,625(28000-(19,550-8,175))	$16,625	$8,175 §1245 recapture $8,450 §1231 gain
1b	0	0	no realization (it is just valuation of stock at end of year)
1c	$1,930	$1,930	ordinary income
1d	$32,200	$21,750*	$3,490 §291 recapture $18,260 §1231 gain (kindly confirm)
1e	($4,140)	($4,140)	long term capital loss
1f	$26,610	$13,560**	$9,210 §1245 recapture $4,350 §1231 gain
1g	$685	$685	long term capital gain
1h	($835)	($835)	ordinary loss; not held for more than 12 months

*Moab recognises $21,750 gain due to extra cash recieved in kind like exchange.the remaining gain is deferred

**$13,560 recognised gain consists of $9,210 depriciation recapture(required to be recognised in year of sale and not eligible for installment sale treatment) and $4350($17400 remaining gain/ $50,100 amount realised x $12,525 cash recieved in year of sale)

2.

description		amount	explanation
§1231 netting process:
1.§1231 gain	$	31,060	$8450 from 1a + $18260 form 1d +$4350 from 1f
2.§1231 loss		0
3.§1231 net gain	$	31,060
4.Unrecaptured §1231 losses	$	2,350
§1231 net gain	$	28,710	(3)-(4) treated as LTCG
ORDIANRY INCOME:
1.§1245 recapture	$	17,295	$8175 FROM 1a+ $9210 from 1f
2.§291 recapture	$	3,490	from 1d
3.ordinary income	$	1,930	from 1c
4.ordinary loss	$	(835)	from 1h
5.Ordinary income from §1231 netting	$	2,000	lookback rule(kindly confirm)
Total	$	23,880
Capital Gains and Losses:
1.Capital gain	$	29,395	$650 form 1g + $28,710  from §1231 netting
2.capital loss	$	(4,140)	from 1e
Net Capital Gain	$	25,255