Reid Had a Business Building Destroyed in a Fire

question 80

Essay

Reid had a business building destroyed in a fire. The old building was purchased for $375,000, and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reid found qualified replacement property that he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

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Definitions:

Current Assets

Current assets are assets that a company expects to convert into cash, sell, or consume within one year or within its operating cycle if longer than a year.

Vertical Analysis

A financial analysis method that compares various line items in a company's financial statements over a single period, expressing each item as a percentage of a base amount to assess relative size and structure.

Comparative Financial Statements

Financial statements that present financial information for different periods or dates side by side to facilitate comparison.

Corporations

Are legal entities that are separate and distinct from their owners. They have the ability to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.