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.

---

Definitions:

Cellulose

A complex carbohydrate that forms the primary structural component of plant cell walls and is not digestible by humans.

Carbohydrates

Organic compounds made up of carbon, hydrogen, and oxygen, serving as a major energy source and structural component of living organisms.

Hemoglobin

An iron-containing protein in red blood cells that is essential for the transport of oxygen from the lungs to the tissues of the body.

Proteins

Large molecules composed of amino acids, essential for structure, function, and regulation of the body's tissues and organs.