Red Company Had an Involuntary Conversion on December 23, 2014

question 136

Multiple Choice

Red Company had an involuntary conversion on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:

• A) $10,000 § 1231 loss.
• B) $4,200 casualty loss.
• C) $4,200 § 1231 loss.
• D) $10,000 § 1245 recapture gain.
• E) None of the above.

---

Definitions:

Evade Regulation

The act of avoiding compliance with laws and rules, typically through loopholes or other indirect methods, often to gain competitive advantage or reduce costs.

Vertical Relationships

Connections between companies or entities at different stages of the supply chain, such as producers and distributors.

Regulated Good

A product or service that is subject to governmental controls and restrictions.

Decrease Retailer Prices

The activity of reducing the cost at which goods or services are sold by retail outlets to the consumer market.