On January 3, 2014, Benton Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2014, this machine was irreparably damaged by Pogo Corp. and became worthless. In October 2014, a court awarded damages of $480,000 against Pogo in favor of Benton. At December 31, 2014, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Benton's attorney, Pogo's appeal will be denied. At December 31, 2014, what amount should Benton accrue for this gain contingency?
A) $480,000.
B) $390,000.
C) $300,000.
D) $0.

Question

Quizplus · Accepted Answer

Gain contingencies are not recognized in the financial statements until they are realized or realizable. The uncertainty of the court case outcome, despite the attorney's opinion, means Benton should not record the gain until the appeal is resolved.