A) During the current year, Mike sold machinery (adjusted basis $300,000; accumulated depreciation $78,000) for a total price of $480,000. Payments are to be made in three annual installments beginning immediately. What is the amount of Sec. 1245/Sec. 1231 gain to be recognized by Mike this year because of the sale?

1. $78,000/$ 34,000

2. $78,000/$102,000

3. $78,000/$ 82,000

4. $60,000/$ 0

5. None of the answers provided is correct.

B) Arnie makes a gift of equipment ($9,000 FMV; $11,000 cost; $6,000 accumulated depreciation) to Dan. Dan uses the equipment in his business, deducts $2,000 in depreciation and then sells the equipment for $10,000. What is the amount and character of the gain recognized by Dan on the sale?

1. $5,000 ordinary income and $2,000 Sec. 1231 gain

2. $7,000 Sec. 1231 gain

3. $2,000 ordinary income and $5,000 Sec. 1231 gain

4. None of the answers provided are correct.

5. $7,000 ordinary income