On June 1 of the Current Year, Tab Converted a Machine

question 32

Multiple Choice

On June 1 of the current year, Tab converted a machine from personal use to rental property.At the time of the conversion, the machine was worth $90,000.Five years ago, Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

• A)$70,000
• B)$90,000
• C)$120,000
• D)$140,000
• E)None of these.

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Definitions:

Accumulated Depreciation

The cumulative amount of a physical asset's value that has been accounted for as depreciation since the asset was first utilized.

Partnership Investment

A contribution of assets by a partner to a partnership, often in exchange for a share of the partnership's profits.

Equipment

Assets used in the operation of a business or manufacturing process, which have a long-term use and value.

Income Ratio

A financial metric that compares various incomes to a particular benchmark, such as net income to sales or investment income to total assets.