Your client, Piano Keys Inc., owns and operates a piano repair shop in Albany, New York. Piano Keys specializes in the repair and restoration of pianos. In November of last year, the roof over two-thirds of the Piano Keys building collapsed due to the weight of the snow on the roof. Since then, the portion of building damaged by the roof collapse has been demolished, an addition was built onto the undamaged portion (one-third) of the building, and Piano Keys reopened for business on September 1st of this year. The following data includes financial information regarding the matter provided by the client. The fair market value of the building (immediately before the roof collapse): $1,800,000 Piano Keys adjusted basis in the building: $300,000 Fair market value of the building immediately after the roof collapse was $600,000. Insurance proceeds due to the destruction of his building: $1,200,000 Demolition and construction costs: $1,500,000. ($1,200,000 of the insurance proceeds and an additional $300,000 of the company’s own funds.)
Your client, Piano Keys Inc., owns and operates a piano repair shop in Albany, New York. Piano Keys specializes in the repair and restoration of pianos. In November of last year, the roof over two-thirds of the Piano Keys building collapsed due to the weight of the snow on the roof. Since then, the portion of building damaged by the roof collapse has been demolished, an addition was built onto the undamaged portion (one-third) of the building, and Piano Keys reopened for business on September 1st of this year. The following data includes financial information regarding the matter provided by the client. The fair market value of the building (immediately before the roof collapse): $1,800,000 Piano Keys adjusted basis in the building: $300,000 Fair market value of the building immediately after the roof collapse was $600,000. Insurance proceeds due to the destruction of his building: $1,200,000 Demolition and construction costs: $1,500,000. ($1,200,000 of the insurance proceeds and an additional $300,000 of the company’s own funds.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Your client, Piano Keys Inc., owns and operates a piano repair shop in Albany, New York. Piano Keys specializes in the repair and restoration of pianos.
In November of last year, the roof over two-thirds of the Piano Keys building collapsed due to the weight of the snow on the roof. Since then, the portion of building damaged by the roof collapse has been demolished, an addition was built onto the undamaged portion (one-third) of the building, and Piano Keys reopened for business on September 1st of this year. The following data includes financial information regarding the matter provided by the client.
- The fair market value of the building (immediately before the roof collapse): $1,800,000
- Piano Keys adjusted basis in the building: $300,000
- Fair market value of the building immediately after the roof collapse was $600,000.
- Insurance proceeds due to the destruction of his building: $1,200,000
- Demolition and construction costs: $1,500,000. ($1,200,000 of the insurance proceeds and an additional $300,000 of the company’s own funds.)
Mrs. Jennifer Keys, the president of Piano Keys Inc., would like to know the federal income tax consequence of this matter.
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