Thieves stole computer equipment owned by Eaton Company and used for three years in its consulting business. Eaton's adjusted basis in equipment was $23,200, and its replacement value was $50,000. Eaton's insurance company paid only $15,000 on Eaton's claim for the theft loss. As a result, Eaton recognizes:

Question

Quizplus · Accepted Answer

Since the insurance reimbursement is less than the adjusted basis of the stolen equipment, Eaton can recognize an ordinary loss equal to the difference between the adjusted basis and the insurance reimbursement. Therefore, Eaton can recognize an ordinary loss of $8,200 ($23,200 - $15,000).

Thieves Stole Computer Equipment Owned by Eaton Company and Used