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

Question

Quizplus · Accepted Answer

The gain or loss is calculated by subtracting the adjusted basis from the sale price. Under regular MACRS, the adjusted basis is $11,500 ($30,000 - $18,500), resulting in a $4,500 gain ($16,000 - $11,500), which is Section 1245 ordinary income. Under straight-line, the adjusted basis is $18,000 ($30,000 - $12,000), resulting in a $2,000 loss ($16,000 - $18,000), which is a Section 1231 loss.

Benson Company Purchased a Drill Press on November 13, 2011