Question

Amachine costing $176,000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $80,000. An insurance check for $200,000 was received based on the replacement cost of the machine. The entry to record the insurance proceeds and the disposition of the machine will include a ______.(A) gain on disposal of $24,000. (B) credit to the Equipment account for $120,000(C) credit to the Accumulated Depreciation account for $80,000.(D) gain on disposal of $104,000.

Answer 1

The answer is (D) gain on disposal of $104,000.

Step-by-step explanation:

We have the carrying value of the machine is equal to Original costing - Accumulated Depreciation = 176,000 - 80,000 = $96,000. While the insurance's receipt is $200,000. Thus, the net gain on disposal = Insurance's receipt - Carrying value of the machine = 200,000 - 96,000 = $104,000.

We have the net journal entry for the event as below:

Dr Accumulated Depreciation $80,000

Dr Cash $200,000

Cr Gain on machine disposal $104,000

Cr Machinery $176,000

in which:

Dr Accumulated Depreciation 80,000 and Cr Machinery 176,000 are to record the removal of Machinery from accounting book.

While Dr Cash 200,000 is to record the amount received from insurance and Cr Gain on machine disposal 104,000 is to record the net gain amount from the event.