Eleven years ago, Lynn Inc. purchased a warehouse for $315,000. This year, the corporation sold the warehouse to Firm D for $80,000 cash and D’s assumption of a $225,000 mortgage. Through date of sale, Lynn deducted $92,300 straight-line depreciation on the warehouse. a. Compute Lynn’s gain recognized on sale of the warehouse. b. What is the character of this gain?c. How would your answers change if Lynn is a noncorporate business?

gain recognized on sale = $82,300

ordinary gain =  $16,460

capital gain = $65,840

gain is $82,300

Explanation:

given data

purchased a warehouse = $315,000

sold warehouse = $80,000

assumption of a mortgage =  $225,000

deducted = $92,300

solution

first we get here Actual cost of warehouse that is

Actual cost of warehouse = Purchase cost - Depreciation    1

put here value and we get

Actual cost of warehouse  = $315,000 - $92,300

Actual cost of warehouse = $222,700

and  

now we gain recognized on sale that is express as

gain recognized on sale = Sale price of warehouse + mortgage amount - actual cost   2

put here value and we get

gain recognized on sale = $80,000 +$225,000 - $222,700

gain recognized on sale = $82,300

and

now we get first we get ordinary gain and we know ordinary gain is the 20% of the gain amount

as the tax rate is 20%

so ordinary gain is

ordinary gain = $82,300 × 20%

ordinary gain =  16,460

so here capital gain will be

capital gain = Gain - Ordinary gain  3

put here value  

capital gain = $82,300 - $16,460

capital gain = $65,840

and

when Lynn is a non corporate business than he will have only gain part of  $82,300 because here ordinary gain and capital gain is not recognized under non corporate business

so gain is $82,300