Hugo Inc,A Calendar Year Taxpayer,sold Two Operating Assets This Year

question 102

Multiple Choice

Hugo Inc.,a calendar year taxpayer,sold two operating assets this year.The first sale generated a $38,700 Section 1231 gain,and the second sale generated a $59,400 Section 1231 loss.As a result of these sales,Hugo should recognize:

• A)$20,700 ordinary loss
• B)$38,700 Section 1231 gain treated as capital gain and $59,400 ordinary loss
• C)$20,700 capital loss
• D)None of the above

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Definitions:

Equity Method

A method of accounting for investments in which the investment is initially recorded at cost and subsequently adjusted for the investor’s share of the investee’s net income or losses and dividends received.

Significant Influence

It refers to the power to participate in the financial and operating policy decisions of an investee but not control those policies.

Trading Security

A financial asset that is bought and sold with the intention of generating profits from short-term fluctuations in its price.

Retained Earnings

Profits that a company has kept or retained rather than distributing to shareholders as dividends.