Asked by Alicia Ebding on Jun 12, 2024
Verified
A company had a tractor destroyed by fire.The tractor originally cost $85,000 with accumulated depreciation of $60,000.The proceeds from the insurance company were $20,000.The company should recognize:
A) A loss of $5,000.
B) A gain of $5,000.
C) A loss of $20,000.
D) A gain of $65,000.
E) A gain of $20,000.
Accumulated Depreciation
The total amount of depreciation expense that has been recorded against an asset over its useful life, reducing its book value.
Original Cost
Original Cost refers to the initial monetary value of an asset or investment at the time of purchase, before any depreciation, amortization, or impairment charges are applied.
- Acquire knowledge on the procedures to report gains or losses when assets are disposed of.
Verified Answer
CF
Colleen FarinaJun 12, 2024
Final Answer :
A
Explanation :
The book value of the tractor is calculated as the original cost ($85,000) minus accumulated depreciation ($60,000), which equals $25,000. Since the insurance proceeds were $20,000, which is $5,000 less than the book value, the company should recognize a loss of $5,000.
Learning Objectives
- Acquire knowledge on the procedures to report gains or losses when assets are disposed of.