Martone Corporation Sells Two Machines and a Warehouse It Has

question 37

Multiple Choice

Martone Corporation sells two machines and a warehouse it has been using for storage in the current tax year.Each of the machines cost $25,000 and has an adjusted basis of $11,000 when each was sold for $14,000.The warehouse cost $105,000,has an adjusted basis of $60,000 and is sold for $95,000.All assets were depreciated using MACRS depreciation.What is the amount and type of gain recognized by Martone on the sale of these assets?

• A)$6,000 Section 1245 recapture;$35,000 Section 1231 gain
• B)$6,000 Section 1245 recapture;$7,000 Section 291 recapture;$28,000 Section 1231 gain
• C)$6,000 section 1245 recapture;$35,000 Section 291 recapture
• D)$41,000 capital gain
• E)None of the above

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Definitions:

Sales Commissions

Sales commissions are payments made to salespersons for selling products or services, typically a percentage of the sale price.

Chief Financial Officer

A senior executive responsible for managing the financial actions of a company.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in revenues, indicating the extent to which a firm can increase profits by increasing sales.

Fixed Costs

Expenses that do not change in proportion to the level of goods or services produced within a certain period.