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Ne4ueva [31]
3 years ago
12

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80%

coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies?
Business
1 answer:
Rama09 [41]3 years ago
3 0

Answer:

$35,000

Explanation:

Given that

Insurance = $700,000

Sustained cost = $40,000

Replacement cost = $1,000,000

Policy = 80%

The computation of amount eligible for payment is as shown below:-

Insurance required = Cost of building × Co insurance

=$1,000,000 × 0.80

= $800,000

The amount eligible for payment = (Insurance Carried ÷ Insurance Required) × Loss

= $700,000 ÷ ($1,000,000 × 80%) × ($40,000)

= $700,000 ÷ $800,000 × $40,000

= 0.875 × $35,000

= $35,000

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On January 1, 2005 Franz Company purchased a truck that cost $22,000. The truck had an expected useful life of 5 years and a $4,
allochka39001 [22]

Answer: The amount of depreciation expense recognized in 2006, using the double declining balance method is $5,280.

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Explanation: The double-declining method is otherwise known as reducing balance method. It is usually derived by using the formula below:

Double-declining depreciation = 2 X SLDP X BV

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So using the straight-line depreciation method, we need to remove the salvage value from the cost and then divided by 5 years. That is, ($22,000 - $4,000) / 5 years = $3,060 yearly depreciation expense.

However, under the double-declining method, we need to divide the 100% by the useful life of the asset first to get the SLDP then multiply by 2, that is, 100%/5 years = 20% x 2 = 40%.

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In year 2 (December 31, 2006), 40% x $13,200 ($22,000 - $8,800) = $5,280 and so on. The depreciation expense would stop immediately it falls below the salvage value of $4,000.

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Answer:

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Explanation:

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