Natural Power Corporation owns a warehouse with an adjusted basis of $195,000 and an appraised fair market value of $185,000. The city of Springfield condemns the property for a new airport. The condemnation award is $185,000. Natural Power invests the $185,000 in a new warehouse on the other side of the city. What is the gain or loss that Natural Power Corporation must recognize due to the transactions?
A)No gain or loss
B)$10,000 gain
C)$10,000 loss
D)$185,000 gain

Question

Quizplus · Accepted Answer

Natural Power Corporation will recognize a loss of $10,000 because the condemnation award of $185,000 is less than the adjusted basis of $195,000. The fact that the company reinvested the condemnation award in a new warehouse is not relevant for determining the gain or loss in this situation.

Natural Power Corporation Owns a Warehouse with an Adjusted Basis