Question

Alex wrecked his car on the way to work. His basis in the car was $20,000. He received $22,000 from the insurance company to replace the car. He only spent $15,000 on a replacement vehicle. What is the amount of the recognized gain?

Answer 1

$2,000

Step-by-step explanation:

Based on the information provided within the question it can be said that Alex's amount of recognized gain was that of $2,000. This is because his car that he wrecked is valued at $20,000. Since he got $22,000 it means he made a gain of $2,000 regardless of how much he spends on a new car. Since he can decide to buy whatever car he wants, he can spend more or less than the money he received.