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Green Valley (GV) Sporting Goods is a retailer specializing in the sale of camping, hiking and fishing equipment. GVs flagship store (means its main store) is located in Moore, OK, a suburb of Oklahoma City. However, GV also has two smaller stores located in Wichita, KS and Springfield, MO. During the current year, a tornado destroyed the Moore store completely leveling the building and destroying all the content of the building. The building had a cost basis to GV of $6 million and a fair value of $11 million at the time of the tornado. The contents of the building (except for the inventory) had a cost basis of $2 million and a fair value of $0.5 million at the time of the tornado. Finally, the inventory destroyed from the tornado had a cost basis of $1.2 million and a fair value of $1.8 million. The buildings and contents of the other GV stores were undamaged. The insurance company paid to have the Moore building rebuilt which cost the insurance company $12 million. The insurance company also paid $700,000 in cash for the contents of the building and $1.9 million for the inventory.

What are the gains (losses) the GV realized and must recognize from this event?

Multiple Choice

• GV has a combined realized and recognized capital gain of $5.4 million

• GV has a realized and recognized ordinary gain of $700,000

• GV has neither a realized gain or loss nor a recognized gain or loss from the event.

• None of the above are correct outcomes.

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