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PROBLEM 10-4 - PROBLEM 10-4 The following accounting...

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PROBLEM 10-4 The following accounting treatment appears appropriate for these items: Land—The loss on the condemnation of the land of $9,000 ($40,000 – $31,000) should be reported as an extraordinary item on the income statement. If condemnations are either usual or recurring, then an ordinary or unusual classification is more appropriate. The $35,000 land purchase has no income statement effect. Building—There is no recognized gain or loss on the demolition of the building. The entire purchase cost ($15,000), decreased by the demolition proceeds ($3,600), is allocated to land. Warehouse—The gain on the destruction of the warehouse should be reported as an extraordinary item, assuming that it is unusual and infrequent. The gain is computed as follows: Insurance proceeds $74,000 Deduct: Cost $70,000 Less: Accumulated depreciation 11,000 59,000 Realized gain $15,000 Some contend that a portion of this gain should be deferred because the proceeds are reinvested in similar assets. We do not believe such an approach should be permitted. Deferral of the gain in this situation is not
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