Inventory with a Value of $420 000 Was Written Down

question 25

Multiple Choice

Inventory with a value of $420 000 was written down to $250 000 in June 2019 because of falling prices in the industry. This transaction will:

• A) decrease assets, profit and shareholders' equity.
• B) decrease assets and profit, but not shareholders' equity.
• C) decrease assets and shareholders' equity but not profit.
• D) None of the above

---

Definitions:

Ordinary Income

Income earned from providing services, including wages, salaries, commissions, and income from businesses in which there is material participation.

Depreciation

A tax deduction reflecting the decrease in value of an asset over time due to wear and tear.

Section 1245

A tax code provision defining the treatment of gains from the sale of depreciable personal property, requiring that such gains be treated as ordinary income to the extent of depreciation taken.

Section 1231 Gain

The profit from the sale or exchange of real or depreciable property used in a business and held longer than one year.