Moab Inc manufactures and distributes hightech biking gadget

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.) Moab Inc. sold a machine that it used to make computerized gadgets for $27,300 cash. It originally bought the machine for $19,200 three years ago and has taken $8,000 depreciation. Moab Inc. held stock in ABC Corp. which had a value of $12,000 at the beginning of the year. That same stock had a value of $15,230 at the end of the year. Moab Inc. sold some of its inventory for $7,000 cash. This inventory had a basis of $5,000. Moab Inc. disposed of an office building with a fair market value of $75,000 for another office building with a fair market value of $55,000 and $20,000 in cash. It originally bought the office building seven years ago for $62,000 and has taken $15,000 in depreciation. Moab Inc. sold some land held for investment for $28,000. It originally bought the land for $32,000 two years ago. Moab Inc. sold another machine for a note payable in four annual installments of $12,000. The first payment was received in the current year. It originally bought the machine two years ago for $32,000 and has claimed $9,000 in depreciation expense against the machine. Moab Inc. sold stock it held for eight years for $2,750. It originally purchased the stock for $2,100. Moab Inc. sold another machine for $7,300. It originally purchased this machine six months ago for $9,000 and has claimed $830 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 51231, capital, or ordinary. (Do not round intermediate computations.) Realized Recognized 51245 Ordinary S291 Ordinary 51231 Gain/(Loss) Gain/(Loss) Income Ordinary Capital Asset Income Gain/(Loss) Income/(Loss) Gain/(Loss) 1:a 1e3 183 1f 1g 1h Totals$ 0 $

Solution

Solution:(1):

Notes: (a) Moab recognize $20,000 gain due to the boot received in the like-minded exchange. The remaining gain is deferred.

(b) $13,000 recognised gain consists of $9,000 depreciation recapture(required to be recognised in year of sale and not eligible for installment sale treatment) and $4,000[($16,000 remaining gain/$48,000 amount realized)*($12,000 cash received in year of sale)

Solution:(2): Moab will realise $23,750 in net capital gains and $23,130 in ordinary income .

This is computed as follows:-

Assets	Realised gain/loss	Recognised gain/loss	Ordinary income(1245)	Ordinary income (291)	Gain/loss(1231)	Ordinary income/loss	capital gain/loss
1a	$16,100	$16,100	$8,000	-----	$8,100(gain)	------	-----
1b	0	-----	------	-----	------	------	------
1c	$2,000	$2,000	------	-----	------	$2,000	------
1d	$28,000	$20,000	------	$3,000	$17,000(gain)	------	-----
1e	($4,000)	($4,000)	------	------	---------	-------	($4,000)[Long-term capital loss]
1f	$25,000	$13,000	$9,000	-----	$4,000(gain)	-----	------
1g	$650	$650	-----	------	--------	-------	$650[Long-term capital gain]
1h	($870)	($870)	------	-----	--------	($870)[not held for more than 12 months]	------
Total	$66,880	$46,880	$17,000	$3,000	$29,100	$1,130	($3,350)