Mogilny Company paid $135,000 for a machine. The Accumulated Depreciation—Equipment account has a balance of $46,500 at the present time. The company could sell the machine today for $150,000. The company president believes that the company has a "right to this gain." What does the president mean by this statement?
The president means that the difference between the fair value and the book value should be recorded in the books as a 'gain'. This item should not be entered in the accounts, however, because no performance obligation related to this machine has been created or satisfied, GAAP will allow the company to record a gain once the machine is sold and delivered to a buyer.
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