Question

A company had a tractor destroyed by fire. The tractor originally cost $135,000 with accumulated depreciation of $69,000. The proceeds from the insurance company were $30,000. The company should recognize: Multiple Choice A gain of $30,000. A loss of $66,000. A loss of $36,000. A gain of $66,000. A gain of $36,000.

Answer 1

The correct answer is a loss of $36,000.

Step-by-step explanation:

Gain or loss on disposal of an asset is calculated by deducting the net book value (NBV) of the asset from the sales proceeds. The NBV is historical cost minus accumulated depreciation.

Therefore, the NBV of the tractor is $135,000 - $69,000 = $66,000

Gain or loss = $30,000 - $66,000

Loss of $36,000, since the sales proceed is less than the NBV.