Tony's Factory Building Was Destroyed in a Fire (Adjusted Basis

question 122

Multiple Choice

Tony's factory building was destroyed in a fire (adjusted basis of $90,000;fair market value of $140,000) .Of the insurance proceeds of $128,000 he receives,Tony uses $88,000 to purchase additional inventory and invests the remaining $40,000 in short-term certificates of deposit.What is Tony's recognized gain or loss?

• A)$0.
• B)$12,000 loss.
• C)$38,000 gain.
• D)$40,000 gain.
• E)None of the above.

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Definitions:

Cost

The amount of money or resources expended to acquire an asset, produce a product, or deliver a service.

Book Value

The amount of an asset or liability according to its balance sheet account, minus any depreciation, amortization, or impairment costs.

Inventory Items

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

List Price

The suggested retail price of a product or service, before any discounts or adjustments.