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 credit to

Question

Quizplus · Accepted Answer

The cost of the truck was $110,000 and the accumulated depreciation was $50,000, so the net book value of the truck was $60,000 ($110,000 - $50,000 = $60,000). The insurance check received was $125,000, which is higher than the net book value of the truck, resulting in a gain on disposal.

The entry to record this transaction would be:
Debit: Cash ($125,000)
Credit: Truck ($60,000)
Credit: Accumulated Depreciation ($50,000)
Credit: Gain on Disposal ($15,000)

Therefore, the correct choice is D, Gain on Disposal of $65,000 (=$15,000 + $50,000).

A Truck Costing $110,000 Was Destroyed When Its Engine Caught