Question

Wells Company has a calendar year reporting period. On January 1,2018, Wells Company’s delivery truck, with a cost of $56,000 was destroyed by a fire. At the time of the fire, the balance in the Accumulated Depreciation account was $38,000. The company received $32,000 reimbursement from its insurance company. How much is the gain or loss on this disposal?

Answer 1

Answer:

gain of $14,000

Explanation:

Data provided in the question:

Cost of the truck = $56,000

Accumulates depreciation on January 1, 2018 = $38,000

Reimbursement received from the insurance company = $32,000

Now,

the book value on January 1, 2018

= Cost of the truck - accumulated depreciation

= $56,000 - $38,000

= $18,000

since, the book value is less than the Reimbursement amount received, therefore a gain will be recognized

The amount of gain = $32,000 - $18,000

= $14,000