Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers and other electronic equipment. The lost assets had an original cost of $35,000 and accumulated tax depreciation of $19,400. Calvin received an insurance reimbursement of $20,000 related to the theft loss, and immediately purchased new replacement computer equipment. In each of the following cases, determine Calvin’s recognized gain, if any, and the tax basis of the replacement property. Assume that Calvin would elect to defer gain recognition when possible.
a. The replacement property cost $27,000.
b. The replacement property cost $18,000.