Ask Question
23 August, 19:44

On June 1, of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth 90,000. Five years ago Tab purchased the machine for 120,000. The machine is still encumbered by a 50,000 mortgage. What is the basis of the machine for cost recovery?

a. 140,000

b. 70,000

c. None of the above

d. 120,000

e. 90,000

+2
Answers (1)
  1. 23 August, 21:26
    0
    e. 90,000

    Explanation:

    In this question, we apply the accounting principle which says that the amount should be recorded at the cost or fair market value whichever is lower at the time of conversion.

    In the given case, the machine was purchased at a cost of $120,000 and at the time of conversion it has the value of $90,000

    So, the lower value would be $90,000

    And, the mortgage value should be ignored
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On June 1, of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers