Troy Company purchased a printing press on April 13, 2011 at a cost of $30,000. Troy sells the printing press on January 3, 2014 for $16,000. Regular MACRS depreciation on the printing press would be $18,500, while straight- line MACRS depreciation would total $12,000. I. If Troy used straight-line depreciation, it would have a Section 1231 loss of $2,000. II. If Troy used regular MACRS depreciation, it would have Section 1245 ordinary income of $4,500.

Question

Quizplus · Accepted Answer

Statement I is correct because the straight-line depreciation of $12,000 results in a book value of $18,000 ($30,000 - $12,000), leading to a loss of $2,000 when sold for $16,000. Statement II is correct because regular MACRS depreciation of $18,500 results in a book value of $11,500 ($30,000 - $18,500), leading to a gain of $4,500 when sold for $16,000, which is treated as Section 1245 ordinary income.

Troy Company Purchased a Printing Press on April 13, 2011