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2 January, 15:30

On December 31 of the current year, a building owned by Pine Corp. was totally destroyed by fire. The building had fire insurance coverage up to $500,000. Other pertinent information as of December 31 of the current year follows:

Building, carrying amount $ 520,000

Building, fair market value 550,000

Removal and cleanup cost 10,000

During January of the following year, before the current year financial statements were issued, Pine received insurance proceeds of $500,000.

Required:

1. On what amount should Pine base the determination of its loss on involuntary conversion?

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Answers (1)
  1. 2 January, 18:03
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    Pine Corp. will base the determination of its loss on involuntary conversion on fair market value of $550,000.

    Explanation:

    Involuntary conversion is the forced payment for property that was damaged or stolen.

    Capital gains will when compensation received is greater than conversion market value.
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