Question

Rhoda owns an electronics store that is burglarized during the current year. The burglars destroy the point-of-sale terminal and steal $380 from the cash drawer. The point-of-sale terminal was purchased for $7,500, and its adjusted basis is $3,700. The insurance adjuster estimates that the fair market value of a similar point-of-sale terminal is $6,000. The burglars also steal stereo equipment costing $4,200 that has a retail value of $7,000. In breaking into the store, the burglars break a large glass door that costs Rhoda $540 to replace. What is Rhoda's deductible loss if the insurance company reimburses her $5,000?

Answer 1

Rhoda's deductible loss after the burglary and insurance reimbursement is $920, which includes the loss of stolen cash and the cost to replace the broken glass door.

Step-by-step explanation:

The student's question revolves around calculating the deductible loss for Rhoda's electronics store following a burglary. Rhoda experienced various losses including cash stolen, damage to a point-of-sale terminal, stolen stereo equipment, and a broken glass door.

After adjusting for insurance reimbursement, the calculation of Rhoda's deductible loss includes the adjusted basis of the point-of-sale terminal minus insurance recovery, stolen cash.

And the cost to replace the door, since the retail value of stolen items is not deductible.To calculate the deductible loss, we first determine the loss on the point-of-sale terminal.

Which is the difference between the adjusted basis and the fair market value or the compensation by insurance, whichever is less. In this case.

The insurance reimburses $5,000 which is less than both the fair market value ($6,000) and the adjusted basis ($3,700), so the loss on this item is $0 as it is fully reimbursed.

Next, we add the stolen cash of $380 and the cost to replace the broken glass door, $540. The stolen stereo equipment cost is not taken into account since the insurance reimbursement more than covers the adjusted basis of all other items.

Therefore, Rhoda's total deductible loss is $380 + $540 = $920.