Ficia IncOwned Investment Land Subject to a $294,500 Recourse Mortgage

question 112

Multiple Choice

Ficia Inc.owned investment land subject to a $294,500 recourse mortgage.Ficia failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Ficia's basis in the land was $300,000,and the land's appraised FMV was $260,000.The creditor informed Ficia that it would not pursue collection of the $34,500 unpaid balance of the mortgage.Which of the following statements is true?

• A)Ficia recognizes $34,500 ordinary income and a $40,000 capital loss.
• B)Ficia recognizes only a $40,000 capital loss.
• C)Ficia recognizes only a $5,500 capital loss.
• D)None of the above

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Definitions:

Continuing Operations

The segments of a business expected to continue operating and providing net income for the foreseeable future.

Maturity Date

The date on which the principal amount of a loan, bond, or other financial instrument becomes due and payable.

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity or the current price of a market-traded security.

Covenants

Agreements or clauses within financial contracts that impose certain conditions or restrictions on the parties involved.