Which of the Following Qualify as Replacement Property Under the Involuntary

question 73

Multiple Choice

Which of the following qualify as replacement property under the involuntary conversion rules?
I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane. The insurance proceeds are used to replace the plant with a refrigerated storage container.
II.Mayfield Ice Cream Company's production plant is destroyed by a fire. They sign a five year lease for a replacement production facility, and the insurance proceeds are then used to buy an office building
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, which can own property, incur debt, sue and be sued.

Partnership

A business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership agreement.

Personal Liability

The legal responsibility of an individual to settle debts or obligations from their own assets, rather than those protected by a corporation or limited liability entity.

Business Debts

Obligations that a business incurs as a result of operating activities, including loans, accounts payable, and any other form of borrowed money.