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Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2020, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000. These assets were also totally destroyed.   a.  Determine the business and personal gain or loss in regard to the building and its contents.   Total   Business Portion   Personal Portion Cost of building $800,000   $fill in the blank bf8d00fdf034fcb_1   $fill in the blank bf8d00fdf034fcb_2 Less: Depreciation (100,000)   fill in the blank bf8d00fdf034fcb_3   fill in the blank bf8d00fdf034fcb_4 Adjusted basis $700,000   $fill in the blank bf8d00fdf034fcb_5   $fill in the blank bf8d00fdf034fcb_6   Decline in FMV $700,000   $fill in the blank bf8d00fdf034fcb_7   $fill in the blank bf8d00fdf034fcb_8   Business Portion   Personal Portion Loss on building (lesser of basis or decline in FMV) $fill in the blank bf8d00fdf034fcb_9   $fill in the blank bf8d00fdf034fcb_10 Less: Insurance reimbursement fill in the blank bf8d00fdf034fcb_11   fill in the blank bf8d00fdf034fcb_12 Loss on business portion  $fill in the blank bf8d00fdf034fcb_14     Loss on personal portion      $fill in the blank bf8d00fdf034fcb_16 Loss on business contents $fill in the blank bf8d00fdf034fcb_17     Less: Insurance recovery fill in the blank bf8d00fdf034fcb_18     Gain on business contents  $fill in the blank bf8d00fdf034fcb_20     Loss on personal contents     $fill in the blank bf8d00fdf034fcb_21 Less: Insurance recovery     fill in the blank bf8d00fdf034fcb_22 Gain on personal contents      $fill in the blank bf8d00fdf034fcb_24 b.  Heather's AGI is $100,000 before considering the effects of the fire. Determine her itemized deduction and AGI after considering the effects of the fire. Adjusted Gross Income       AGI before the effects of the fire     $100,000 Business gain - building $fill in the blank e9c50207bfacfe1_1     Business loss - contents (fill in the blank e9c50207bfacfe1_2)     Net business casualty loss     (fill in the blank e9c50207bfacfe1_3) Personal casualty gain fill in the blank e9c50207bfacfe1_4     Personal casualty loss to extent of gain (fill in the blank e9c50207bfacfe1_5)     Net personal casualty gain     fill in the blank e9c50207bfacfe1_6 AGI     $fill in the blank e9c50207bfacfe1_7 Itemized Deduction     Balance of personal casualty loss   $fill in the blank e9c50207bfacfe1_8

Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2020, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000. These assets were also totally destroyed.   a.  Determine the business and personal gain or loss in regard to the building and its contents.   Total   Business Portion   Personal Portion Cost of building $800,000   $fill in the blank bf8d00fdf034fcb_1   $fill in the blank bf8d00fdf034fcb_2 Less: Depreciation (100,000)   fill in the blank bf8d00fdf034fcb_3   fill in the blank bf8d00fdf034fcb_4 Adjusted basis $700,000   $fill in the blank bf8d00fdf034fcb_5   $fill in the blank bf8d00fdf034fcb_6   Decline in FMV $700,000   $fill in the blank bf8d00fdf034fcb_7   $fill in the blank bf8d00fdf034fcb_8   Business Portion   Personal Portion Loss on building (lesser of basis or decline in FMV) $fill in the blank bf8d00fdf034fcb_9   $fill in the blank bf8d00fdf034fcb_10 Less: Insurance reimbursement fill in the blank bf8d00fdf034fcb_11   fill in the blank bf8d00fdf034fcb_12 Loss on business portion  $fill in the blank bf8d00fdf034fcb_14     Loss on personal portion      $fill in the blank bf8d00fdf034fcb_16 Loss on business contents $fill in the blank bf8d00fdf034fcb_17     Less: Insurance recovery fill in the blank bf8d00fdf034fcb_18     Gain on business contents  $fill in the blank bf8d00fdf034fcb_20     Loss on personal contents     $fill in the blank bf8d00fdf034fcb_21 Less: Insurance recovery     fill in the blank bf8d00fdf034fcb_22 Gain on personal contents      $fill in the blank bf8d00fdf034fcb_24 b.  Heather's AGI is $100,000 before considering the effects of the fire. Determine her itemized deduction and AGI after considering the effects of the fire. Adjusted Gross Income       AGI before the effects of the fire     $100,000 Business gain - building $fill in the blank e9c50207bfacfe1_1     Business loss - contents (fill in the blank e9c50207bfacfe1_2)     Net business casualty loss     (fill in the blank e9c50207bfacfe1_3) Personal casualty gain fill in the blank e9c50207bfacfe1_4     Personal casualty loss to extent of gain (fill in the blank e9c50207bfacfe1_5)     Net personal casualty gain     fill in the blank e9c50207bfacfe1_6 AGI     $fill in the blank e9c50207bfacfe1_7 Itemized Deduction     Balance of personal casualty loss   $fill in the blank e9c50207bfacfe1_8

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 7-34 (LO. 3, 4)

Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2020, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000. These assets were also totally destroyed.

 

a.  Determine the business and personal gain or loss in regard to the building and its contents.

 
Total		   Business
Portion		   Personal
Portion
Cost of building $800,000   $fill in the blank bf8d00fdf034fcb_1   $fill in the blank bf8d00fdf034fcb_2
Less: Depreciation (100,000)   fill in the blank bf8d00fdf034fcb_3   fill in the blank bf8d00fdf034fcb_4
Adjusted basis $700,000   $fill in the blank bf8d00fdf034fcb_5   $fill in the blank bf8d00fdf034fcb_6
 
Decline in FMV $700,000   $fill in the blank bf8d00fdf034fcb_7   $fill in the blank bf8d00fdf034fcb_8


  Business
Portion		   Personal
Portion
Loss on building (lesser of basis or decline in FMV) $fill in the blank bf8d00fdf034fcb_9   $fill in the blank bf8d00fdf034fcb_10
Less: Insurance reimbursement fill in the blank bf8d00fdf034fcb_11   fill in the blank bf8d00fdf034fcb_12
Loss on business portion  $fill in the blank bf8d00fdf034fcb_14    
Loss on personal portion      $fill in the blank bf8d00fdf034fcb_16
Loss on business contents $fill in the blank bf8d00fdf034fcb_17    
Less: Insurance recovery fill in the blank bf8d00fdf034fcb_18    
Gain on business contents  $fill in the blank bf8d00fdf034fcb_20    
Loss on personal contents     $fill in the blank bf8d00fdf034fcb_21
Less: Insurance recovery     fill in the blank bf8d00fdf034fcb_22
Gain on personal contents      $fill in the blank bf8d00fdf034fcb_24

b.  Heather's AGI is $100,000 before considering the effects of the fire. Determine her itemized deduction and AGI after considering the effects of the fire.

Adjusted Gross Income      
AGI before the effects of the fire     $100,000
Business gain - building $fill in the blank e9c50207bfacfe1_1    
Business loss - contents (fill in the blank e9c50207bfacfe1_2)    
Net business casualty loss     (fill in the blank e9c50207bfacfe1_3)
Personal casualty gain fill in the blank e9c50207bfacfe1_4    
Personal casualty loss to extent of gain (fill in the blank e9c50207bfacfe1_5)    
Net personal casualty gain     fill in the blank e9c50207bfacfe1_6
AGI     $fill in the blank e9c50207bfacfe1_7


Itemized Deduction    
Balance of personal casualty loss   $fill in the blank e9c50207bfacfe1_8
### Transcription for Educational Website #### Fire Loss Calculation 1. **Loss on Business Contents** - Loss Amount: $100 - Less: Insurance Recovery: $240,000 2. **Gain on Business Contents** - Gain Amount: $230,900 3. **Loss on Personal Contents** - Loss Amount: $360,000 - Less: Insurance Recovery: $15,000 4. **Gain on Personal Contents** - Gain Amount: $345,000 #### Adjusted Gross Income Calculation b. Heather's AGI (Adjusted Gross Income) is $100,000 before considering the effects of the fire. The task is to determine her itemized deductions and AGI after considering these effects. **Adjusted Gross Income Analysis:** - **AGI before the effects of the fire:** $100,000 - **Business Gain - Building:** $230,900 - **Business Loss - Contents:** $100 - **Net Business Casualty Loss:** $0 - **Personal Casualty Gain:** $345,000 - **Personal Casualty Loss to Extent of Gain:** $15,000 - **Net Personal Casualty Gain:** $330,000 The diagram in the image outlines how the losses and gains from business and personal contents due to the fire have been calculated, leading to adjustments in Heather's overall financial position.
Transcribed Image Text:### Transcription for Educational Website #### Fire Loss Calculation 1. **Loss on Business Contents** - Loss Amount: $100 - Less: Insurance Recovery: $240,000 2. **Gain on Business Contents** - Gain Amount: $230,900 3. **Loss on Personal Contents** - Loss Amount: $360,000 - Less: Insurance Recovery: $15,000 4. **Gain on Personal Contents** - Gain Amount: $345,000 #### Adjusted Gross Income Calculation b. Heather's AGI (Adjusted Gross Income) is $100,000 before considering the effects of the fire. The task is to determine her itemized deductions and AGI after considering these effects. **Adjusted Gross Income Analysis:** - **AGI before the effects of the fire:** $100,000 - **Business Gain - Building:** $230,900 - **Business Loss - Contents:** $100 - **Net Business Casualty Loss:** $0 - **Personal Casualty Gain:** $345,000 - **Personal Casualty Loss to Extent of Gain:** $15,000 - **Net Personal Casualty Gain:** $330,000 The diagram in the image outlines how the losses and gains from business and personal contents due to the fire have been calculated, leading to adjustments in Heather's overall financial position.
### Business and Personal Gain or Loss Analysis This section covers how to determine the business and personal gain or loss with regard to a building and its contents. #### Cost and Basis Calculation - **Cost of Building**: - **Total**: \$800,000 - **Business Portion**: \$320,000 - **Personal Portion**: \$480,000 - **Less: Depreciation**: - **Total**: \$(100,000) - **Business Portion**: \$(40,000) - **Personal Portion**: \$(60,000) - **Adjusted Basis**: - **Total**: \$700,000 - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 - **Decline in FMV (Fair Market Value)**: - **Total**: \$700,000 - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 #### Loss Calculation on Building - **Loss on Building (lesser of basis or decline in FMV)**: - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 - **Less: Insurance Reimbursement**: - **Business Portion**: \$240,000 - **Personal Portion**: \$360,000 - **Loss on Business Portion**: - Business: \$40,000 - **Loss on Personal Portion**: - Personal: \$60,000 #### Loss on Personal Contents - **Loss on Business Contents**: - Business: \$100 This analysis helps business owners and individuals to understand the financial impact of depreciation, loss, and insurance reimbursements on their property investments.
Transcribed Image Text:### Business and Personal Gain or Loss Analysis This section covers how to determine the business and personal gain or loss with regard to a building and its contents. #### Cost and Basis Calculation - **Cost of Building**: - **Total**: \$800,000 - **Business Portion**: \$320,000 - **Personal Portion**: \$480,000 - **Less: Depreciation**: - **Total**: \$(100,000) - **Business Portion**: \$(40,000) - **Personal Portion**: \$(60,000) - **Adjusted Basis**: - **Total**: \$700,000 - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 - **Decline in FMV (Fair Market Value)**: - **Total**: \$700,000 - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 #### Loss Calculation on Building - **Loss on Building (lesser of basis or decline in FMV)**: - **Business Portion**: \$280,000 - **Personal Portion**: \$420,000 - **Less: Insurance Reimbursement**: - **Business Portion**: \$240,000 - **Personal Portion**: \$360,000 - **Loss on Business Portion**: - Business: \$40,000 - **Loss on Personal Portion**: - Personal: \$60,000 #### Loss on Personal Contents - **Loss on Business Contents**: - Business: \$100 This analysis helps business owners and individuals to understand the financial impact of depreciation, loss, and insurance reimbursements on their property investments.
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