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Unformatted text preview: CHAPTER 17 Know: What is a Section 1231 asset? What is Section 1245? What is deprecation recapture? MULTIPLE CHOICE 1. White Company acquires a new machine for $35,000 and uses it in Whites manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for Whites business. White had fully expensed the machine in the year of acquisition using 179. White sells the machine for $5,000 in the tax year after it was acquired, but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss? a. A capital asset and $5,000 gain. b. An ordinary asset and $5,000 gain. c. A 1231 asset and $5,000 gain. d. A 1231 asset and $5,000 loss. e. None of the above. ANS: B The machine was depreciable property used in a business and held one year or less; so it was an ordinary asset. Since there was a zero basis, all of the $5,000 proceeds is taxable gain. PTS: 1 DIF: 1 REF: p. 17-5 OBJ: 2 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min 2. Which of the following assets held by a retail business is a 1231 asset? a. Inventory. b. A machine used in the business and held less than one year. c. A factory building used in the business and held more than one year. d. Accounts receivable. e. All of the above. ANS: C Inventory is an ordinary asset. A machine used in the business is a 1231 asset once it has been held more than a year. Accounts receivable are an ordinary asset. PTS: 1 DIF: 1 REF: p. 17-5 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 5 min 6. Vertigo, Inc., has a 2010 net 1231 loss of $64,000 and had a $32,000 net 1231 gain in 2009. For 2010, Vertigos net 1231 loss is treated as: a. Ordinary loss....
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This note was uploaded on 02/27/2012 for the course ECON 4371 taught by Professor Muir during the Spring '12 term at King Mongkut's Institute of Technology Ladkrabang.
- Spring '12