The Ottomans Own a Winter Cabin in Durango,Colorado

question 86

Multiple Choice

The Ottomans own a winter cabin in Durango,Colorado.They purchased the cabin in 2004 for $65,000.During the current year,a blizzard partially destroys the cabin.The fair market value of the cabin after the blizzard is $70,000.The insurance company estimates that the cost of repairing the cabin will be $40,000.The insurance company will reimburse the Ottomans for 70% of the repair cost.What can they deduct as a casualty loss if their adjusted gross income for the year is $80,000?

• A)$3,900
• B)$4,000
• C)$8,000
• D)$11,900
• E)$12,000

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Definitions:

Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity available to run its operations.

Current Ratio

A measure of a business's capacity to cover its short-term liabilities, found by the ratio of current assets to current liabilities.

Acid-Test Ratio

A strict metric used to assess if a business possesses sufficient current assets to meet its short-term obligations without the need to liquidate inventory.

Times Interest Earned

A financial metric indicating how many times a company can cover its interest obligations with its earnings before interest and taxes.