Ocean Corp.'s comprehensive insurance policy allows its assets to be replaced at current value. The policy has a $50,000 deductible clause. One of Ocean's waterfront warehouses was destroyed in a winter storm. Such storms occur approximately every four years. Ocean incurred $20,000 of costs in dismantling the warehouse and plans to replace it. The tax rate is 30%. The following data relate to the warehouse:
Current carrying amount $ 300,000
Replacement cost 1,100,000
Under U.S. GAAP, what amount of gain should Ocean report as a separate component of income before extraordinary items?
Idk if my brain isn't working today or what lol. But is the replacement cost being paid by the insurance policy, hence the gain?
Basically, you are taking 1,100,000 – the carrying- deductible- cost incurred for dismantling = 730k. I get the number but just not seeing how it is a gain.. most likely because I dont understand how insurance works :/ I feel stupid.
.