Friendly Furniture, Inc., a manufacturer of fine hardwood furniture, is a publicly held SEC-registered company with a December 31 year-end. During May, Friendly had a flood due to heavy rains at its major manu- facturing facility that damaged about $525,000 of furniture. Friendly is insured for the property loss at replacement value and carries business interruption insurance for lost production. The company anticipates that the total insurance proceeds will exceed the carrying value of the destroyed furniture and the cost of repairing the facility will be in the range of $700,000 to $1.75 million. The company believes that the in- surance carrier will advance approximately 50 percent of the expected proceeds sometime during July. The company has resumed its opera- tions to about one-half of normal capacity and expects to operate at full capacity by September. The company does not expect to file a formal in- surance claim until then because it expects that the entire cost of the business interruption will not be known until September. Friendly ex- pects to receive the proceeds of the settlement from the insurance car- rier during its fourth quarter. The company is in the process of making a stock offering and will file a registration statement with the SEC at the end of July, in which it will present stub period financial statements covering the six-month period through June 30. Based on the minimum amount of the expected pro- ceeds, Friendly would like to recognize a receivable for the insurance proceeds and to report a gain in its financial statements for the period ended June 30. The company would also like to allocate a portion of the expected proceeds to cost of products sold.L-987