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:

Autonomous Consumption

The level of consumption that occurs when income levels are zero, representing the expenditures that consumers must make even when they have no income.

Terrible Depression

An extremely severe and prolonged downturn in economic activity, characterized by significant declines in GDP, employment, and production.

APC

Average Propensity to Consume, indicating the percentage of income that an individual or average consumer spends rather than saves.

Disposable Income

The total amount of money available for an individual or household to spend or save after taxes have been deducted.