Benson Company purchased a drill press on November 13, 2014, at a cost of $30,000. Benson sells the drill press on January 3, 2018, 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

Benson Company purchased a drill press on November 13, 2014, at a cost of $30,000. Benson sells the drill press on January 3, 2018, 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.
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Quizplus · Accepted Answer

The gain or loss is calculated by comparing the sale price to the adjusted basis. 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, 2014