A Fire Destroys David's Business Building That Cost $200,000 in 2005

question 38

Essay

A fire destroys David's business building that cost $200,000 in 2005 and had an adjusted basis of $160,000. David's insurance company reimburses him $250,000 for his loss. David promptly reconstructs the building for $230,000.
a.What is the amount and the character of David's minimum recognized gain (loss)?
b.What is the basis of David's new building?

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Definitions:

Check Register

A record of checks written, deposits made, and balances for a checking account.

Deposit

An amount of money placed into an account or given to someone as a partial payment or security for the purchase of something.

Check Register

A record book or digital log used to track checks written, deposits made, and current balance of a bank account.

Cash Balance

The amount of currency and liquid instruments in a company's possession that can be readily used for transactions.