A Flood Destroys Owen's Building That Cost $100,000 in 2007,which

question 117

Short Answer

A flood destroys Owen's building that cost $100,000 in 2007,which has an adjusted basis of $80,000.Owen's insurance company reimburses him $125,000 for his loss.Owen promptly reconstructs the building for $115,000.What is the minimum amount of gain that Owen must recognize and his basis in the new building?
$$\begin{array} { l l l } & { \text { Recognized } } & \text { New } \\& \underline { \text { Gain } }& \underline { \text { Basis }} \\\text { a. } & \$ - 0 - & \$ 80,000 \\\text { b. } & \$ - 0 - & \$ 115,000 \\\text { c. } & \$ 10,000 & \$ 80,000 \\\text { d. } & \$ 10,000 & \$ 115,000 \\\text { e. } & \$ 10,000 & \$ 150,000\end{array}$$

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Definitions:

Restocking Costs

Expenses associated with replenishing inventory or stock levels in a business, including purchasing, shipping, and handling costs.

Carrying Costs

The aggregate amount spent on inventory upkeep, which covers costs related to storage, insurance premiums, and tax payments.

Opportunity Costs

The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

Inventory

Goods and materials that a business holds for the ultimate goal of resale or processing.