A Factory Building Owned by Amber, Inc

question 20

Multiple Choice

A factory building owned by Amber, Inc. is destroyed by a hurricane. The adjusted basis of the building was $400,000 and the appraised value was $425,000. Amber receives insurance proceeds of $390,000. A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000. What is the recognized gain or loss and what is the basis of the new factory building?

• A) $0 and $450,000.
• B) $0 and $460,000.
• C) ($10,000) and $440,000.
• D) ($10,000) and $450,000.
• E) None of the above.

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Definitions:

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards and procedures used in the United States by accountants to compile financial statements.

Treasury Stock

Shares that were issued and later reacquired by the issuing company, reducing shareholders' equity.

Greenmail

A strategy where a company buys back its own shares at a premium from a potential acquirer to prevent a takeover attempt.

Takeover Attempt

An effort by one company to acquire control of another company, often through the purchase of a significant portion of its stock.