Sumner sold equipment that it uses in its business for $30,800. Sumner bought the equipment a few years ago for $79,600 and has claimed $39,800 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

The correct answer is loss of $9,000 and section 1231.

Explanation:

According to the scenario, the given data are as follows:

Purchase amount of equipment = $79,600

Depreciation expense = $39,800

Sold value = $30,800

So, to calculate the amount of gain or loss we use the following formula:

Gain or loss = Sold value - (purchase value - depreciation expense)

= $30,800 - ($79,600 - $ 39,800)

= $30,800 - 39,800

= - $9,000

As the value is in negative, it shows loss.

Hence, It shows the loss of $9,000 under section 1231.