Question

Equipment costing $276000 was destroyed when it caught on fire. At the date of the fire, the accumulated depreciation on the equipment was $103000. An insurance check for $325000 was received based on the replacement cost of the equipment. The entry to record the insurance proceeds and the disposition of the equipment will include a
a. credit to the Equipment account of $160000.
b. credit to the Accumulated Depreciation accou eunt for $100000.
c. gain on disposal of $140000.
d. gain on disposal of $40000.

Answer 1

Answer:

a). The credit to the equipment account=$173,000

b). Credit to the accumulated depreciation account for $103,000

c). gain on disposal=$152,000

Explanation:

a). The formula for the book value of the equipment when it caught fire can be expressed as;

Book value=Acquisition cost-accumulated depreciation

where;

acquisition cost=$276,000

accumulated depreciation=$103,000

replacing;

Book value=(276,000-103,000)=$173,000

The credit to the equipment account=$173,000

b).  Credit to the accumulated depreciation account for $103,000

c). The formula for calculating the gain from disposal is;

gain on disposal=insurance check-book value

where;

insurance check=$325,000

book value=173,000

replacing;

gain on disposal=325,000-173,000=$152,000