Question

Joyce’s office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce’s recognized gain or loss?

$0
$10,000 loss
$10,000 gain
$40,000 gain
None of the above

Answer 1

$10,000 gain

Step-by-step explanation:

The computation of recognized loss or gain is shown below:

= Insurance proceeds amount - adjusted basis

= $360,000 - $350,000

= $10,000 gain

So, it would have a recognized gain of $10,000 by considering the amount of insurance proceed and adjusted basis. We ignore all other information which is given in the question