A Machine Costing $176,000 Was Destroyed When It Caught Fire

question 43

Multiple Choice

A machine 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.

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Definitions:

Incremental Cost

The additional cost that a company incurs when producing one more unit of a product.

Incremental Costs

Costs that change as a result of a decision to increase or decrease the level of an activity or operation.

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered by future actions, and therefore should not influence current or future business decisions.

Out-of-pocket Cost

Expenses that are paid out directly and result in a financial outlay.