Required informationProblem 11-50 (LO 11-5) (Static)[The following information applies to the questions displayed below]GAruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as $1231assets. The first is machinery and will generate a $10,000 $1231 loss on the sale. The second is land that will generate a$7,000 $1231 gain on the sale. Aruna's ordinary marginal tax rate is 32 percent.Note: Input all amounts as positive values.Problem 11-50 Part-a (Static)a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax liability?Aruna's tax willincrease b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have onAruna's tax liability for each year?Aruna's tax willAruna's tax will(Static)increaseincreasein year 1 byin year 2 by$$7,80032,500

The effect of an asset, which has been sold during the year, have an impact over the tax liability…

Answered: Assuming she sells both assets in…

Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax liability? Aruna's tax will increase

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 29P

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on
Aruna's tax liability for each year?
Aruna's tax will
Aruna's tax will
(Static)
increase
increase
in year 1 by
in year 2 by
$
$
7,800
32,500

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