Red Company Had an Involuntary Conversion on December 23, 2018

question 162

Multiple Choice

Red Company had an involuntary conversion on December 23, 2018. The machinery had been acquired on April 1, 2016, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:

• A) $10,000 § 1231 loss.
• B) $10,000 § 1245 recapture gain.
• C) $4,200 casualty loss.
• D) $4,200 § 1231 loss.
• E) None of the above.

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Definitions:

Circadian Rhythm

The internal process that regulates the sleep-wake cycle and repeats roughly every 24 hours.

REM Sleep

A phase of sleep characterized by rapid eye movements, more dreaming, and body paralysis, which is thought to be involved in processing emotions and memories.

Vivid Dream

A dream with intense, lifelike imagery, emotions, and sensory experiences.

Light-Sensitive Proteins

Proteins in photoreceptor cells that respond to light and are crucial for vision.