Alpha Sold Machinery, Which It Used in Its Business, to Beta

question 48

Multiple Choice

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

• A) $20,000 ordinary income under §1239.
• B) $10,000 ordinary gain and $10,000 §1231 gain.
• C) $20,000 ordinary gain.
• D) $20,000 capital gain.
• E) None of the choices are correct.

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Definitions:

Depolarization

A decrease in the charge difference across a plasma membrane; may result in an action potential in a neuron or muscle cell.

Squid Axon Experiments

Classic scientific experiments conducted to understand the properties of nerve cells by studying the giant axon of squid.

Alan Hodgkin

A British physiologist and biophysicist who, along with Andrew Huxley, elucidated the ionic mechanism underlying nerve impulse transmission, work for which they received the Nobel Prize.

Andrew Huxley

A British physiologist and biophysicist who won the Nobel Prize for Physiology or Medicine in 1963, for his work on the basis of nerve impulse transmission.