Question

8. 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?

Answer 1

Answer:

The recognized loss is $10,000 and the basis of the new factory building is $450,000

Explanation:

The computations are shown below:

Gain or loss = Insurance proceeds received - the adjusted basis of the building  

                    = $390,000 - $400,000

                    = ($10,000)

And, the basis of the new factory building would be $450,000 as it includes only construction cost  

All other information which is given is not relevant. Hence, ignored it