Joyce, a Farmer, Has the Following Events Occur During the Tax

question 204

Multiple Choice

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion) ?

• A) Her farm tractor is hauled to the city dump because it is worn out.
• B) She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd in preparation for her retirement.
• C) Her personal residence, adjusted basis of $100,000, is condemned to make way for an interstate highway. She recovers condemnation proceeds of $175,000.
• D) She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd due to a reduction in milk prices.
• E) None of the above.

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Definitions:

Financial Statement

A formal record of the financial activities and position of a business, individual, or other entity, usually presented in a structured manner for a specific period.

Return On Total Assets

A profitability ratio that measures the profitability of total assets without considering how the assets are financed, computed as income plus interest expense divided by average total assets.

Profitability

A measure of how effectively a company generates profit from its revenues or assets.

Debt And Equity

The two major sources of financing for a company, where debt involves borrowing money to be repaid, and equity involves raising money by selling interests in the company.