A machine costing $176000 was destroyed when it caught fire.At the date of the fire the accumulated depreciation on the machine was $80000.An insurance check for $200000 was received based on the replacement cost of the machine.Recording the insurance proceeds and the disposition of the machine will include a(n)
A)gain on disposal of $24000.
B)decrease to Equipment for $120000.
C)increase to Accumulated Depreciation for $80000.
D)gain on disposal of $104000.

Question

Quizplus · Accepted Answer

The cost of the machine was $176,000 and the accumulated depreciation was $80,000, so the book value of the machine was $96,000 ($176,000 - $80,000). When the machine was destroyed, it resulted in a loss of $96,000. However, the insurance check received was for $200,000, which is $104,000 more than the book value of the machine. Therefore, there is a gain on disposal of $104,000 ($200,000 - $96,000).

A Machine Costing $176000 Was Destroyed When It Caught Fire