Lauren’s Construction Company is a calendar year taxpayer. In 2010, a hurricane destroyed three of Lauren’s truck with a $1,250,000 aggregate adjusted tax basis. On October 12, Lauren received a $3,500,000 reimbursement check from its insurance company. On May 19, 2011, Lauren purchased new trucks for $4,250,000. Compute Laurens’s realized gain or loss on the involuntary conversion and its tax basis in the new trucks. a. $0 realized gain; $1,250,000 basis in the trucks. b. $2,250,000 realized gain; $4,250,000 basis in the trucks. c. $1,250,000 realized gain; $1,250,000 basis in the trucks. d. $2,250,000 realized gain; $2,000,000 basis in the trucks. e. None of the above

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Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.