White Company Acquires a New Machine for $75,000 and Uses

question 21

Multiple Choice

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired, but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

• A) A capital asset and $60,000 gain.
• B) An ordinary asset and $60,000 gain.
• C) A § 1231 asset and $60,000 gain.
• D) A § 1231 asset and $60,000 loss.
• E) None of the above.

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Definitions:

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and profits or losses.

Balance Sheet

An overview document that itemizes a business’s resources, debts, and owner’s equity at a particular date, giving a concise view of its fiscal status.

Trade Credit Discounts

Reductions in the price of goods or services offered to buyers as an incentive to pay earlier than the payment terms require.

Costly Trade Credit

Describes the high costs associated with taking advantage of credit offered by suppliers or creditors, particularly when payment terms are not met, resulting in high interest rates or financial penalties.