Keiko Sells a Piece of Equipment Used in Her Business

question 36

Multiple Choice

Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2015. The equipment was purchased on January 4, 2014 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko?

• A) $5,859 ordinary income under Section 1245.
• B) $5,859 Section 1231 gain.
• C) $3,855 ordinary income under Section 1245 and $2,004 Section 1231 gain.
• D)$3,855 Section 1231 gain and $2,004 ordinary income under Section 1245.

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Definitions:

Manufacturing Overhead Account

An account that accumulates all indirect manufacturing costs, such as utilities, rent, and salaries for managers.

Underapplied Overhead

A situation where the allocated manufacturing overhead cost is less than the actual overhead cost incurred.

Job Costing

A cost accounting system that accumulates costs for each individual job or project separately.

Process Costing

Process costing is an accounting method used to allocate the costs of production to units of product, particularly suitable for manufacturing processes that are continuous or produce homogeneous products.