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A machine costing $180000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $84000. An insurance check for $210500 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 credit to the Accumulated Depreciation account for $84000. credit to the Equipment account for $126500. gain on disposal of $114500. gain on disposal of $30500.

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Answer:

The answer  is: gain on disposal of $114500

Explanation:

The gain on disposal is calculated by the following formula:

gain on disposal=replacement cost - (purchase cost - depreciation expense)

gain on disposal = $210,500 - ($180,000 - $84,000) = $210,500 - $96,500 = $114,500

The journal records should be as follows:

  • Dr Cash 210,500
  • Dr Accumulated depreciation 84,000
  • Cr Machine 180,000
  • Cr Gain on disposal 114,500

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