Question

A truck costing $110,000 was destroyed when its engine caught fire. At the date of the fire, the accumulated depreciation on the truck was $50,000. An insurance check for $125,000 was received based on the replacement cost of the truck. The entry to record the insurance proceeds and the disposition of the truck will include a
a. Gain on Disposal of $15000.
b. credit to the Truck account of $79000.
c. credit to the Accumulated Depreciation account for $46000.
d. Gain on Disposal of $61000.

Answer 1

Answer:

The original price of the truck was $110,000 and its accumulated depreciation was 50,000, which means that its remaining book value was 60,000 (110,000-50,000). So when its engine caught fire the truck's book value was 60,000 but because of the insurance the money received to replace the truck was 125,000. This means that a profit was made. To calculate the profit we will subtract the book value of the truck at the time which was 60,000 from the money received from insurance which was 125,000.

125,000-60,000 =65,000

So the $65,000 will be recorded as gain on disposal

Explanation: