A Warehouse with an Adjusted Basis of $125,000 Was Destroyed

question 8

Short Answer

A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15,2015.On June 15,2015,the insurance company paid the owner $195,000.The owner reinvested $170,000 in a warehouse.What is the basis of the new warehouse if non-recognition of gain from an involuntary conversion is elected?

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Definitions:

Activity-Based Costing

This is a pricing technique which tags and assigns the expenses of each activity within a company to its various products and services, based on their specific consumption levels.

Overhead Cost

All ongoing business expenses not directly attributed to creating a product or service, including rent, utilities, and salaries of non-production employees.

Activity Cost Pools

Collections of all the costs associated with a particular business activity, facilitating more precise allocation of overheads.

Overhead Cost

Indirect expenses related to the production of goods or services, such as rent, utilities, and salaries of management, that cannot be directly tied to a specific product.