AICPA Exam CPA-Regulation Topic 2 Question 23 Discussion

Choice 'c' is correct. Investment assets of a taxpayer that are not inventory are capital assets. The manufacturing company would have capital assets including an investment in U.S. Treasury bonds.

Choice 'a' is incorrect. Accounts receivable generated from the sale of inventory are excluded from the statutory definition of capital assets.

Choice 'b' is incorrect. Depreciable property used in a trade or business is excluded from the statutory definition of capital assets.

Choice 'd' is incorrect. Land is usually a capital asset, but when it is effectively inventory, as when it is used by a developer to be subdivided, it is excluded from the statutory definition of capital assets.