On December 1 st , 2 0 0 9 , Fuego Inc. purchased commercial property in
Question:
On December st Fuego Inc. purchased commercial property in Russellville, AR for $ million. The useful life of this property was expected to be years and Fuego Inc. used the straightline method of depreciation. On December st a fire burns down Fuego Inc.s corporate headquarters. At the time of the earthquake, the fair market value of the corporate headquarters was $ million. In accordance with the insurance policy, the fair market value of the property is based on a thirdparty appraisal that took place shortly before the fire. Using external experts, Fuego Inc. and the insurance company determine and agree that the insurance company would compensate Fuego Inc. for $ million in lieu of the increase in market prices of real estate. On December st the insurance company signs a document affirming that they will compensate Fuego for $ million to be disbursed to Fuegos account on April th Record all journal entries for the following set of transactions for the time span between December st and April th
a The damage due to the fire if any is to be recorded
b The insurance recovery receivable if any and
c Any gain contingencies to be recorded for the amount that the fair value exceeds the net book value.
d The receipt of $ million from the insurance company.
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson