Brad Sold a Rental House That He Owned for $250,000

question 99

Multiple Choice

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

• A)$25,000 ordinary and $50,000 unrecaptured §1250 gain.
• B)$25,000 §1231 gain and $50,000 unrecaptured §1250 gain.
• C)$75,000 ordinary gain.
• D)$75,000 capital gain.
• E)None of the choices are correct.

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account that estimates the portion of accounts receivable which may not be collected, reducing the reported amount of receivables.

Bad Debt Expense

The cost a company incurs because of the inability to collect payments from customers for credit sales, recognized as an expense.

Uncollectible Accounts

Accounts from which businesses are unable to obtain payment, often leading to writing off these amounts as a bad debt expense.

Allowance Method

A method used in accounting to estimate the amount of uncollectible accounts receivable. This ensures revenues and expenses are matched in the period they are incurred.