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6 June, 14:29

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?

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  1. 6 June, 16:45
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    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
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