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:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or commodity, often to protect consumers.

Price Floor

A government or regulatory-imposed minimum price set for a particular good or service, below which it cannot be sold, often to protect producers or encourage production.

Surplus

The situation in which the quantity of a good or service supplied exceeds the quantity demanded at the existing price.

Price Ceiling

A price ceiling is a legal maximum price set by the government for certain goods or services to prevent prices from becoming prohibitively high.