A Corporation Owns Many Acres of Timber,which It Acquired Three

question 4

Multiple Choice

A corporation owns many acres of timber,which it acquired three years ago,and which has a $150,000 basis for depletion.The timber is cut during the current year for use in the corporation's business.The FMV of the timber on the first day of the current year is $280,000.If the corporation makes the appropriate election,the tax result is

• A)recognition of a Sec.1231 gain of $130,000.
• B)no recognition of gain or loss since the timber is used in the business.
• C)recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber.
• D)recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting).

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Bond Yield

The return an investor realizes on a bond, calculated as the annual interest payment divided by the bond's current market price.

Face Value

The nominal value printed on a bond, currency, ticket, or other financial instrument, representing its legal value rather than market value.

Market Price

The present rate at which a service or asset is available for purchase or sale.