A Tornado Demolished Several Delivery Vans Owned for Three Years

question 110

Multiple Choice

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

• A) $3,400 Section 1231 loss
• B) $65,000 Section 1231 loss
• C) $65,000 ordinary loss
• D) None of these choices are correct

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Definitions:

Diluted Earnings Per Share

A metric that calculates a company's earnings per share (EPS) if all convertible securities were converted into common stock, often resulting in a lower EPS.

Liquidating Dividend

A type of dividend paid by a company to its shareholders from its capital base, effectively returning a portion of the original investment back to the shareholders.

Capital Dividend

A dividend paid to shareholders from a company's capital rather than its earnings, often tax-exempt for the receiver.

Dividend Policy

The strategy a company uses to decide how much it will pay out to shareholders in dividends.