Question

A company had a bulldozer destroyed by fire. the bulldozer originally cost $125,000 with accumulated depreciation of $60,000. the proceeds from the insurance company were $90,000. the company should recognize:

Answer 1

The company should recognize a gain of $25,000, which is the difference between the insurance proceeds of $90,000 and the bulldozer's book value of $65,000 after subtracting the accumulated depreciation from the original cost.

Step-by-step explanation:

When a company's asset is destroyed, such as a bulldozer in this case, the company must determine the financial impact of the loss and recognize any gain or loss in their accounting records. The original cost of the bulldozer was $125,000, and it had accumulated depreciation of $60,000. The insurance proceeds amount to $90,000.

To calculate the loss or gain, you subtract the accumulated depreciation from the original cost to get the bulldozer's book value, then compare the book value to the insurance proceeds. So, the book value of the bulldozer at the time of destruction is $125,000 - $60,000 = $65,000. Comparing the book value to the insurance proceeds, we see that the company received more from the insurance than the book value of the bulldozer: $90,000 - $65,000 = $25,000. Therefore, the company should recognize a gain of $25,000.