Sumner Sold Equipment That It Uses in Its Business for $30,000

question 37

Multiple Choice

Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

• A) $10,000 §1231 loss.
• B) $10,000 §1245 loss.
• C) $50,000 ordinary loss.
• D) $10,000 capital loss.
• E) None of the choices are correct.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold in the open market.

Expected Profit

The anticipated earnings from an investment or business venture after accounting for potential risks and expenses.

Loanable Funds

The total amount of capital available for borrowing, comprised of savings from individuals, businesses, and government, which is available for investment purposes.

Commercial Paper

A short-term, unsecured promissory note issued by corporations, often used for the financing of accounts receivable, inventories, and meeting short-term liabilities.