Red Company Had an Involuntary Conversion on December 23, 2019

question 60

Multiple Choice

Red Company had an involuntary conversion on December 23, 2019.The machinery had been acquired on April 1, 2017, 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 these.

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Definitions:

Receiving Report

A document that records the details of materials or goods received by a company, ensuring the quantities and descriptions match the order.

Materials Ordered

The process of requesting and purchasing raw materials or supplies required for production or operations.

Materials Requisitions

Documents that request the release of materials to be used in the production process or for other operational needs.

Recording Materials

The process of documenting raw materials, work-in-progress, and finished goods within a business.