Question

FASB Codification Case #6

Statement of Cash Flow

Reporting Insurance Proceeds

Facts

On June 1, YR01 a tornado completely destroyed a storage warehouse owned by Target Inc. The

warehouse had a cost basis of $1,000 and accumulated depreciation of $400. Insurance proceeds

of $1,200 were received from Target’s insurance company.

Question

Should the $1,200 of cash proceeds from the insurance policy be reported on Target’s statement

of cash flow? If so, how?

Required

1. With respect to the statement of cash flow, provide a brief written description of the proper

reporting of the $1,200 cash received from insurance.

2. Identify the specific paragraph of the FASB Codification which addresses this issue and

submit a printout of this paragraph with your solution.

Grade Value

This case counts as a bonus question (maximum 2 percentage points) for examination #3.

You must work independently on this case (this is not a group project).

Answer 1

1.

A large warehouse was destroyed by a tornado. It had a cost basis of $1,000 and accumulated depreciation of $400. Insurance proceeds of $1,200 were received from the insurance company.

Storage warehouse is a FIXED ASSET. Any transaction related to a fixed asset is shown under CASH FLOW FROM INVESTING ACTIVITIES.

(Additional note- The impact of Gain from this transaction will have an impact on Cash Flow from Operating Activities)

2.

The relevant FASB