Tom Truman Sells a Business Machine Which He Has Owned

question 37

Multiple Choice

Tom Truman sells a business machine which he has owned for four years for $27,000. Tom purchased the machine for $42,000 and has taken $18,000 in depreciation. How much and what type of gain will result from this sale?

• A) $3,000 long-term capital gain
• B) $3,000 ordinary income
• C) $18,000 ordinary income; $3,000 long-term capital gain
• D) $3,000 Section 1231 gain

---

Definitions:

Discounted Payback Period

The time it takes to recoup an investment considering the time value of money, by discounting future cash flows to present value.

Market Value

The immediate cost at which services or assets are exchangeable in a free trading market.

Net Present Value

A financial metric that discounts all expected future cash flows to their present value to assess the viability or profitability of an investment.

Investment Cost

The total amount of money spent to acquire an investment, including all charges, fees, and acquisition expenses.