A machine costing $132,000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $60,000. An insurance check for $150,000 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 $18,000.
B) credit to the Equipment account for $72,000.
C) credit to the Accumulated Depreciation account for $60,000.
D) gain on disposal of $78,000.

Question

Quizplus · Accepted Answer

The gain on disposal is calculated as the insurance proceeds ($150,000) minus the book value of the machine ($132,000 - $60,000 = $72,000), resulting in a gain of $78,000.

A Machine Costing $132,000 Was Destroyed When It Caught Fire