In April, vandals completely destroyed outdoor signage owned by Renfru Inc. Renfru's adjusted tax basis in the signage was $31,300. Renfru received a $50,000 reimbursement from its property insurance company, and on August 8, it paid $60,000 to replace the signage. Compute Renfru's recognized gain on loss on the involuntary conversion and its tax basis in the new signage.

Question

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Renfru has a recognized gain of $18,700 ($50,000 insurance reimbursement - $31,300 adjusted tax basis). However, because the entire $50,000 insurance proceeds were reinvested into replacement property costing more than the reimbursement amount, the recognized gain can be deferred. The basis of the new signage is $41,300 ($60,000 cost of new signage - $18,700 deferred gain). None of the provided choices accurately reflect both the recognized gain and the correct basis in the new signage.

In April, Vandals Completely Destroyed Outdoor Signage Owned by Renfru