Cape horn company purchased a building on march 1 1988 at

Reference no: EM13611773

Cape Horn Company purchased a building on March 1, 1988, at acost of $4,186,000. For financial reporting purposes, the building was being depreciatedover 372 months at $10,500 per month. The remaining $280,000 of the cost was the estimatedsalvage value. The building was sold on October 31, 2007, for $7.2 million. An accelerateddepreciation method allowed by the tax code was used to record depreciation for thetax return. As of October 31, 2007, the company had recorded $3.5 million of depreciation fortax purposes using an accelerated basis. Determine (a) the amount of gain or loss thatshould be reported on the income statement regarding the sale of the building, (b) theamount of gain or loss that should be reported on the tax return regarding the sale of thebuilding, and (c) why a company would use straight-line depreciation for financial reportingpurposes and accelerated depreciation for tax purposes.

Reference no: EM13611773

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