In the Current Year, Marcus Reports the Following Casualty Gains

question 6

Multiple Choice

In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. As a result of these losses and insurance recoveries, Marcus must report

• A)a net gain of $3,700.
• B)a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.
• C)a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.
• D)a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

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Definitions:

Periodic Inventory System

A method that relies on occasional physical counts of inventory to determine the ending inventory balance and the cost of goods sold.

Purchase Return

Occurs when a buyer returns merchandise to the seller for a refund or credit due to various reasons such as defects or dissatisfaction.

Merchandise Defective

Goods received or in inventory that do not meet the seller's or buyer's specifications and may need to be returned or discarded.

Net Method

An accounting method where discounts for early payment are anticipated and recorded as reductions of the cost of purchases or an expense.