On October 18, 2015, a flood washed away heavy construction equipment owned by Company K. The adjusted tax basis in the equipment was $416,000. On December 8, 2015, Company K received a $480,000 reimbursement from its insurance company. On April 8, 2016, Company K purchased new construction equipment for $450,000.
a. How much 2015 gain must Company K recognize because of the involuntary disposition of the equipment?
b. What is Company K’s tax basis in the new equipment?
c. How would your answers change if Company K paid $492,000 for the new equipment?