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W Practice Portal Rennie, a 12 year old middle Newsday to his extended new bike with a specially Jd middle school student, just agreed to take over a paper route to deliver od on a daily basis. To deliver the papers, he purchases a specially equipped basket to transport the papers each morning. How is the bike classified for income tax purposes? a. The bike is an ordinary income asset. b. The bike is a capital asset. c. The bike is a Section 1231 asset. d. The bike is a personal asset. Custom Framing, Inc., a corporation, sold a machine used to cut wood used in their picture frames for $2,700. They originally purchased the machine for $2,000 and had taken $1,400 in depreciation deductions. When the company that made the machine went out of business, the machine became a collectors item, and the company sold the machine for more than they paid for it to purchase other equipment. Which of the following statements concerning the tax impact of the sale transaction is correct? a. The company will recognize $2,100 of ordinary income. b. The company will recognize $1,400 of ordinary income. c. The company will recognize a capital gain of $700 that will be taxed at the favorable long-term capital gains tax rate. d. The company will recognize a short-term capital gain of $700. Ten years ago, Chelsea purchased an industrial sewing machine used in her business, Froggie Dolls, LLC, for $10,000. She had taken depreciation deductions of $9,000 over this period, and sold the machine for $12,000 after she purchased a new state-of-the-art industrial sewing machine. How much ordinary income will Chelsea recognize on the sale of the machine? a. $0. b. $1,000. c. $9,000 d. $11,000. t building for $2 million several years ago. He has claimed Michael purchased an apartment 0.000 during the holding period, and straight-line during the holding period, and depreciation deductions totaling $950, $900,000. What is Michael's long-term capital gain (taxed at depreciation would have been $90 c) that will be recognized for income tax purposes if he sells the the highest capital gains tax rate) tha building for $2.5 million? a. 0. b. $50,000. c. $500,000 d. $1.450,000 MULTIPLE CHOICE PROBLEMS 497

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