A truck costing $154,000 was destroyed when its engine caught fire. At the date of the fire, the accumulated depreciation on the truck was $70,000. An insurance check for $175,000 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

Question

Quizplus · Accepted Answer

The insurance check for $175,000 ($175,000 - $154,000 = $21,000) represents a gain on the disposal of the truck. The accumulated depreciation of $70,000 is credited to the Accumulated Depreciation account, and the Truck account is debited for its original cost ($154,000). Therefore, the entry to record the insurance proceeds and the disposition of the truck would be:

Debit: Insurance Proceeds $175,000
Debit: Loss on Disposal $0
Debit: Truck Cost $154,000
Credit: Accumulated Depreciation $70,000
Credit: Gain on Disposal $91,000

The Gain on Disposal is calculated as follows:
Insurance Proceeds $175,000
- Truck Cost ($154,000)
- Accumulated Depreciation ($70,000)
= Gain on Disposal $91,000

Therefore, the correct choice is D.

A Truck Costing $154,000 Was Destroyed When Its Engine Caught