Red Company Had an Involuntary Conversion on December 23,2015

question 81

Multiple Choice

Red Company had an involuntary conversion on December 23,2015.The machinery had been acquired on April 1,2013,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:

• A)$10,000 § 1231 loss.
• B)$10,000 § 1245 recapture gain.
• C)$4,200 casualty loss.
• D)$4,200 § 1231 loss.
• E)None of the above.

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Definitions:

Long-Lived Assets

Assets that are expected to provide economic benefits to a company over a period longer than one year, such as buildings, machinery, and land.

Physical Substance

A characteristic referring to tangible assets which have a physical form and presence, as opposed to intangible assets like patents or copyrights.

Intangible Assets

Non-physical assets that have a value to the company, such as intellectual property, brand recognition, and goodwill.

Current Liabilities

Short-term financial obligations a company owes and is expected to pay within one year or within its operating cycle.