Question

A company had a tractor destroyed by fire. The tractor originally cost $143,000 with accumulated depreciation of $76,200. The proceeds from the insurance company were $38,000. The company should recognize_______________.

Answer 1

• The company should recognize a loss of $28,800.

Step-by-step explanation:

The book value of the tractor was the original cost of $143,00 less the accumulated depreciation of $76,200:

• $143,000 - $76,200 = $66,800

Since the tractor was destroyed by fire, the asset must be removed from inventory by bringing its book value to zero, i.e. subtracting $66,800.

Since the insurance company reimbursed $38,000, the company must declare proceeds for $38,000.

The net change is:

• $38,000 - $66,800 = - $28,800.

That is a loss of $28,800.

Therefore, the company should recognize a loss of $28,800.