On January 3, 2007, Alton Corp.owned a machine that had cost $200,000.The accumulated depreciation was $120,000, estimated salvage value was $12,000, and fair market value was $320,000.On January 4, 2007, this machine was irreparably damaged by Reed Corp.and became worthless.In October 2007, a court awarded damages of $320,000 against Reed in favor of Alton.At December 31, 2007, the final outcome of this case was awaiting appeal and was, therefore, uncertain.However, in the opinion of Alton's attorney, Reed's appeal will be denied.At December 31, 2007, what amount should Alton accrue for this gain contingency?
A)$320,000.
B)$260,000.
C)$200,000.
D)$0.

Question

Quizplus · Accepted Answer

Gain contingencies are not recognized in financial statements until they are realized or realizable. Since the outcome of the appeal is uncertain, Alton should not accrue any gain contingency.