A truck costing $35,000 was destroyed when its engine caught fire. At the date of the fire, the accumulated depreciation on the truck was $16,000. An insurance cheque for $40,000 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 $5,000.
B) debit to the Truck account of $19,000.
C) credit to the Accumulated depreciation account for $16,000.
D) gain on disposal of $21,000.

Question

Quizplus · Accepted Answer

At the date of the fire the carrying amount of the truck was $19,000. If the insurance pays $40,000 then the difference between carrying amount and proceeds is recorded as a gain on disposal, in this case $21,000.

A Truck Costing $35,000 Was Destroyed When Its Engine Caught