Donna Corporation (the Company) purchased a piece of equipment on January 1, 2022, for a cash...

 

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Donna Corporation (the Company) purchased a piece of equipment on January 1, 2022, for a cash purchase price of $100,000. The equipment qualified for and the Company elected to depreciate the equipment under the bonus depreciation rules whereby the entire purchase price for tax purposes was deducted in the year of acquisition, 2022. For financial statement purposes the Company was using the straight-line method of depreciation over 10 years with no salvage value. Feedback from the Company's employees indicated that the equipment was not functioning as intended and on December 31, 2022, management of the Company sold the equipment to an unrelated party for $100,000. The terms of the sale provide that the buyer paid the Company $10,000 on the date of the sale (December 31, 2022) and issued the Company an interest bearing note that requires the remaining balance of $90,000 to be paid in full on July 1, 2023. Note: The property in problem 10 was held for 1 year. Hint: Depreciation recapture. Required Prepare the necessary journal entry to remove the equipment and related accumulated depreciation from the Company's financial reporting records. Calculate the tax gain on the sale of the equipment. How much of the tax gain will be required to be reported in 2022 and how much will be required to be reported in 2023. Donna Corporation (the Company) purchased a piece of equipment on January 1, 2022, for a cash purchase price of $100,000. The equipment qualified for and the Company elected to depreciate the equipment under the bonus depreciation rules whereby the entire purchase price for tax purposes was deducted in the year of acquisition, 2022. For financial statement purposes the Company was using the straight-line method of depreciation over 10 years with no salvage value. Feedback from the Company's employees indicated that the equipment was not functioning as intended and on December 31, 2022, management of the Company sold the equipment to an unrelated party for $100,000. The terms of the sale provide that the buyer paid the Company $10,000 on the date of the sale (December 31, 2022) and issued the Company an interest bearing note that requires the remaining balance of $90,000 to be paid in full on July 1, 2023. Note: The property in problem 10 was held for 1 year. Hint: Depreciation recapture. Required Prepare the necessary journal entry to remove the equipment and related accumulated depreciation from the Company's financial reporting records. Calculate the tax gain on the sale of the equipment. How much of the tax gain will be required to be reported in 2022 and how much will be required to be reported in 2023.