For Each of the Following Involuntary Conversions, Determine If the Property

question 216

Essay

For each of the following involuntary conversions, determine if the property qualifies as replacement property.
a. Chuck's restaurant building is destroyed by fire. He clears the site and builds another restaurant building.
b. Diane's warehouse which she used for storing inventory is destroyed by a tornado. She purchases another warehouse in which she will store inventory.
c. Part of Andrew's dairy farm land is condemned to make way for an interstate highway. He uses the condemnation proceeds to construct a barn to be used for storing cattle feed.
d. Liz owns a shopping mall which is destroyed by a flood. Since the tenant occupancy rate was down, she uses the insurance proceeds to purchase an office building which she will rent to tenants.
e. Eleanor's Maserati Gran Turismo is stolen. The original cost was $125,000, and she had used it exclusively for personal use. Due to the limited supply of this model, it had appreciated in value. Eleanor received insurance proceeds of $130,000 and uses the proceeds to purchase a replacement Gran Turismo.

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Definitions:

C + I

An economic term that represents the sum of consumer spending (C) and investment spending (I); key components of the Gross Domestic Product (GDP) formula.

Investment

The allocation of resources, such as capital or time, in the hope of generating future profits or benefits.

Capacity Utilization Rate

The percentage of a firm's total production capacity that is actually being used in production.

Proprietorship

A business owned and operated by a single individual, where there is no legal distinction between the owner and the business entity.