On March 3, 2011, Craig Bought a Business-Use Vehicle for $20,000

question 34

Multiple Choice

On March 3, 2011, Craig bought a business-use vehicle for $20,000. He used the vehicle for three years and properly deducted a total of $12,000 as depreciation expense during this period. At the end of 2014, Craig sells the vehicle for $7,500. Why is Craig's deductible loss $500? I. Craig has already recovered $12,000 of his investment through the depreciation deduction. II. The adjusted basis of the vehicle was $12,000 at the date of sale. III. $7,500 of the adjusted basis was recovered because of the sale. IV. The realized loss is recognized because it was incurred with business-use property.

• A) Statements I and III are correct.
• B) Statements I, III and IV are correct.
• C) Statements II and III are correct.
• D) Only statement IV is correct.
• E) Statements I, II, III, and IV are correct.

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Definitions:

Temporal Method

An exchange rate conversion method used in international finance to translate the financial statements of a foreign subsidiary to the parent company's currency, involving specific asset and liability conversions at historical exchange rates.

Remeasured

Adjusted or recalculated, often in the context of converting the value of foreign currency transactions or financial statements into a functional currency.

Historical Exchange Rate

The exchange rate at which a foreign currency transaction was completed, used to convert values to a presentation currency for reporting purposes.

Common Stock

Equity securities that represent ownership in a corporation, providing voting rights and a share in the company's profits through dividends.