Eric Purchased a Building in 2008 That He Uses in His

question 48

Multiple Choice

Eric purchased a building in 2008 that he uses in his business.Eric uses the straight-line method for the building.Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000.Eric is in the top tax bracket and has never sold any other business assets.If the building is sold for $560,000,the tax results are

• A)$260,000 Sec.1231 gain,all taxable at 20%.
• B)$260,000 unrecaptured Sec.1250 gain,all taxable at 25%.
• C)$260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%.
• D)$120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%.

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Definitions:

Variable Cost

Expenses that vary directly with the level of production or volume of operations in a business.

Period Cost

These are costs that are not directly tied to the production process and are expensed in the period in which they occur. Examples include selling, general, and administrative expenses.

Raw Materials

Basic materials used in the production process, transformed into finished goods through manufacturing or processing.

Computer Board

A printed circuit board used in a computer to which the processor, RAM, and other components are attached.