This year, Sigma Inc. generated $639,000 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months: Initial Basis Acc. Depr Sale Price
Marketable securities $144,000 0 $64,000
Production equipment 93,000 $76,000 30,000
Business realty:
Land 165,000 0 180,000
Building 200,000 58,300 210,000

Required:
a. Compute Sigma’s taxable income assuming that it used the straight-line method to calculate depreciation on the building and has no nonrecaptured.
b. Recompute taxable income assuming that Sigma sold the securities for $150,000 rather than $64,000.

Sigma Inc.

a. Sigma's Taxable Income:

Business income =     $639,000

Capital gains =                 16,300

Total taxable income $655,300

b. Sigma's Taxable Income:

Business income =     $639,000

Capital gains =               102,300

Total taxable income   $741,300

Explanation:

a) Data and Calculations:

Business income = $639,000

Capital gains:

                                    Initial Basis Acc. Depr    Sale Price  Gain/(Loss)

Marketable securities $144,000        0               $64,000    ($80,000)

Production equipment   93,000   $76,000          30,000        13,000

Business realty:

Land                             165,000        0                180,000         15,000

Building                      200,000      58,300        210,000         68,300

Net capital gains                                                                     $16,300

Capital gains recomputed:

                                    Initial Basis Acc. Depr    Sale Price  Gain/(Loss)

Marketable securities $144,000        0             $150,000       $6,000

Production equipment   93,000   $76,000          30,000        13,000

Business realty:

Land                             165,000        0                180,000         15,000

Building                      200,000      58,300        210,000         68,300

Net capital gains                                                                   $102,300

a) both were commissioned explorers