44 Red Company Had an Involuntary Conversion on December 23, 2014

question 29

Multiple Choice

44. Red Company had an involuntary conversion on December 23, 2014. The machinery had been acquired on April 1, 2012, 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 these.

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Definitions:

Job Cuts

A reduction in the number of employees typically due to financial strains or organizational restructuring.

Scanlon Plan

A type of gainsharing program that rewards employees for improvements in productivity and cost savings within a company.

Gainsharing Plan

An incentive strategy that rewards employees for contributing to the company's productivity improvements by sharing the resultant financial gains.

Profit-Sharing Plan

A company-wide program that provides employees with a share in the profits of the company, typically based on its quarterly or annual earnings.