In June, a Fire Completely Destroyed Office Furniture Owned by W&S

question 91

Multiple Choice

In June, a fire completely destroyed office furniture owned by W&S Inc. W&S's adjusted tax basis in the furniture was $17,040. W&S received a $15,000 reimbursement from its property insurance company, and on August 8, it paid $16,000 to replace the furniture. Compute W&S's recognized gain on loss on the involuntary conversion and its tax basis in the new furniture.

• A) No recognized gain or loss; $18,040 basis in the furniture
• B) $2,040 recognized loss; $16,000 basis in the furniture
• C) No recognized gain or loss; $13,960 basis in the furniture
• D) None of these choices are correct

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Definitions:

Bonds Payable

Long-term liabilities represented by bonds that a company must repay to investors at a specified maturity date.

Cash Dividends

Payments made by a company out of its profits to its shareholders in the form of cash.

Common Stock

A type of security that signifies holding an ownership stake in a corporation, reflecting corporate equity possession.

Net Loss

Occurs when a company's expenses exceed its revenues during a specific period of time, indicating a negative financial performance.