Problem: Duke Plumbing and Wallpaper Company is a corporation that has been in business since 1990. During the current year, it has the following property transactions:
a. A warehouse purchased in 2000 for $200,000 is sold for $180,000. Depreciation taken on the building to date of sale totals $62,000.
b. Wallpaper that cost $60,000 becomes obsolete when a new type of wallpaper is developed. Duke is unable to sell the wallpaper and ends up throwing it in the trash.
c. Two of Duke's service trucks collide in the parking lot, destroying both trucks.
The older truck cost $18,000 and had an adjusted basis of $5,000. Its fair market value of $9,000 is reimbursed by Duke's insurance company. The newer truck was purchased 3 months earlier for $22,000. It has a fair market value of $18,000, which is reimbursed by Duke's insurance company.
d. Plumbing equipment purchased in January for $6,000 is sold in November for $4,000. The equipment was advertised as being the easiest of its kind to use in installing new plumbing fixtures. However, it is so complicated to operate that none of Duke's employees can figure out how to use it, and Duke decides it is easier to do the work the old-fashioned way.
e. Duke's computer system becomes obsolete and is sold for $1,500. Duke paid $15,000 for the system 4 years earlier and has taken $11,500 in depreciation on the system as of the date of sale.
f. Because the 2 service trucks that were destroyed (in part c) have to be replaced, Duke decides to sell its other service truck and buy 3 new trucks. The third service truck cost $19,000 two years earlier and has an adjusted basis of $14,000. Duke receives $15,000 from the sale of the truck.
g. An antique plumbing plunger for which Duke had paid $4,000 and which was fully depreciated is sold for $7,000.
h. Duke decides not to replace the warehouse it sold in part a. The office building it erected in 2001 at a cost of $140,000 to service the warehouse is no longer of any use and is sold for $162,000. The office building has an adjusted basis of $122,000.
For each of these transactions, determine the gain or loss that must be recognized on the transaction and the character of the gain or loss. Determine the effect of all the transactions on Duke's taxable income for the year.