A Fire Destroyed Josh's Scuba Shop

Multiple Choice

A fire destroyed Josh's Scuba Shop. The business had an adjusted basis of $500,000 and a fair market value of $600,000. Josh received $550,000 from the insurance company and used the cash to go to Hawaii. I. Josh has a realized gain of $100,000. II. Josh has a recognized gain of $50,000.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.