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

question 41

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:

Reasonable Basis

Reasonable basis is a standard in law and finance that suggests a belief or action is supportable based on the facts and evidence available at the time, implying due diligence was exercised.

Limited Legal Liability

A legal status in which an individual's financial responsibility for a business's debts or obligations is restricted to a predetermined amount, usually limited to their investment.

Small Business

An enterprise with limited revenue and a small number of employees, as defined by government standards.

Raise Capital

The act of obtaining funds or resources for business operations, expansion, or investment.