Cape Horn Company purchased a building on March 1, 1988 at a cost of $4,186,000. For financial reports purposes, the building was being depreciated over 372 months at $ 10,500 per month. The remaining $ 280,000 of the cost was the estimated salvage value. The building was sold on October 31, 2007 for $ 7.2 million. An accelerated depreciation method allowed by the tax code was used to record depreciation for the tax return. As of October 31, 2007 the company has recorded $3.5 million of depreciation for tax purposes using an accelerated basis. Determine.

a) The amount of gain or loss that should be reported on the income statement regarding the sale of the building

b) The amount of gain or loss that should be reported on tax return regarding the sale of building

c) Why a company would use straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes.