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?

Question

Reginald Atkinson

Business

21 October, 19:33

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?

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Answers (1)

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Irvin Arias · Answer 1

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