Otto Operates a Bakery and Is on the Cash Method

question 4

Essay

Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $20,000 and claimed depreciation of $12,000 up to the fire. Otto was charged $4,400 for repairs to the oven but the insurance company paid Otto $1,500 for the damage. What is Otto's casualty loss deduction?

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Definitions:

Book Value

The value of a company or asset according to its financial statements, calculated by taking the total assets minus the liabilities and intangible assets.

Mortgage Payable

A liability account on the balance sheet representing the amount owed to a lender for property purchased.

Market Value

The present-day trading price for assets or services available in the open market.

Book Value

The net value of a company's assets as found on its balance sheet, which is often different from its market value.