Late in the current year, Brad Corporation's factory was destroyed by a tornado. Brad determined that it had a $200,000 unreimbursed loss on the building built ten years ago and a $75,000 gain on ten-year-old machinery (cost $100,000). Prior to the tornado, Brad had a condemnation gain on land of $100,000, a Section 1231 loss of $150,000, and a $25,000 Section 1231 gain.
a. Determine the results of both Step 1 and Step 2 of the Section 1231 netting process and the effect of these occurrences on Brad's net income.
b. How would your answers change if Brad was a sole proprietorship instead of a corporation?