1- In the current year, Henry, a sole proprietor, sold for $65,000 a machine tha
ID: 2563191 • Letter: 1
Question
1-
In the current year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business. The machine had been purchased a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $20,000 and an adjusted basis of $30,000. For the current year, how should this gain be treated?
a.Section 1231 gain of $15,000 and ordinary income of $20,000
b.Ordinary income of $35,000
c.Section 1231 gain of $35,000
d.Section 1231 gain of $20,000 and ordinary income of $15,000
e.None of these choices are correct.
2-
Calculator
Choose the incorrect statement.
a.The choice to file on a fiscal year-end basis must be made with an initial tax return.
b.Books and records may be kept on a different year-end basis than the year-end used for tax purposes.
c.Almost all individuals file tax returns using a calendar year accounting period.
d.An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met
Explanation / Answer
(1) ANSWER IS
(A) SECTION 1231 , GAIN 15000, ORDINARY INCOME 20000.
SALE PRICE 65000, COST 50000
BASE = 30000.
(2)
ANSWER IS
(B) BOOKS AND RECORDS MAY BE KEPT ON A DIFFERENT YEAR END BASIS THAN THE YEAR END USED FOR TAX PURPOSE.
THIS IS INCORRECT STATEMENT.
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