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

question 6

Multiple Choice

A corporation owns many acres of timber,which it acquired three years ago,and which has a $120,000 basis.The timber was cut last year for use in the corporation's business.The FMV of the timber on the first day of last year was $270,000.The corporation made the appropriate election to treat the cutting as a sale or exchange.The timber is sold for $300,000 this year.The tax result this year is

• A)recognition of capital gain of $30,000.
• B)recognition of Sec.1231 gain of $30,000.
• C)recognition of ordinary income of $30,000.
• D)no income recognized since all recognition occurs in the year of the cutting of the timber.

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Definitions:

Accrued Expenses

Expenses that have been incurred but not yet paid, typically recorded at the end of an accounting period.

Prepaid Expenses

Costs paid in advance for goods or services, which are accounted for as assets until the benefits are realized.

Investing Activities

Financial transactions and events related to acquiring or disposing of investments and long-term assets.

Bonds Payable

A long-term liability representing the amount owed by an entity to bondholders, to be repaid at the bond's maturity date.