Ebon Company had an involuntary conversion on December 23,2011.The machinery had been acquired on April 1,2009,for $69,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Ebon received $10,000 of insurance proceeds for the machine and did not replace it.This was Ebon's only casualty or theft event for the year.As a result of this event,Ebon initially has:

Question

Quizplus · Accepted Answer

When machinery is destroyed in a casualty event and the insurance proceeds do not exceed the adjusted basis of the property, the taxpayer can claim a casualty loss for the difference between the adjusted basis and the insurance proceeds. In this case, the adjusted basis of the machinery was $14,200 and the insurance proceeds were $10,000, resulting in a casualty loss of $4,200. The loss is deductible as a non-business casualty loss on Form 4684 and is reported on Schedule A of the taxpayer's individual income tax return. The other options (A, B, D, E) are incorrect because they do not accurately reflect the tax consequences of this event.

Ebon Company Had an Involuntary Conversion on December 23,2011