Red Company Had an Involuntary Conversion on December 23,2016

question 42

Multiple Choice

Red Company had an involuntary conversion on December 23,2016.The machinery had been acquired on April 1,2014,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:

Model Village

A community or settlement established as a prototype or for the purpose of demonstrating particular socio-economic strategies or architectural styles.

Interposition

A visual cue in which one object partially covers another, leading the observer to perceive it as closer.

Weber's Law

A principle of perception that states the smallest change in a stimulus that can be detected is a constant proportion of the stimulus level.

Fechner's Law

A principle in psychophysics stating that the perceived intensity of a stimulus changes proportionally to the logarithm of the actual stimulus intensity.