Question

On January 1 of the current year, the records of Khouri Corporation showed the following regarding a truck: Equipment (estimated residual value, $8,300) Accumulated depreciation (straight-line, three years) $ 26,700 6,900 On December 31 of the current year, the delivery truck was a total loss as the result of an accident. Required: 1. Based on the data given, compute the estimated useful life of the truck. 2. Prepare all journal entries with respect to the truck on December 31 of the current year, assuming there was no insurance coverage on the truck. 3. Assuming Khouri had casualty insurance on the truck and received $13,200 from the insurance company for the accident, determine whether there was a gain or loss for the disposal and what the associated amount was. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Based on the data given, compute the estimated useful life of the truck. Estimated useful life years

Answer 1

• Requirement 1

A	Accumulated Depreciation (3 years)	$6,900
B = A/3 years	Annual Depreciation	$2,300
C	Cost of equipment	$26,700
D	Residual value	$8,300
E = C - D	Depreciable cost	$18,400
F = E/B	Estimated Useful life	8	years = Answer

• [2]

Date	Accounts title	Debit	Credit
31-Dec	Depreciation expense	$2,300
	Accumulated Depreciation		$2,300
	(to record year #4 depreciation)
31-Dec	Accumulated Depreciation (6900 + 2300)	$9,200
	Loss on disposal	$17,500
	Equipment		$26,700
	(to record disposal)

• [3]

>Book value at time of disposal = $ 26700 – 9200 = $ 17,500
>Insurance amount received = $ 13200
>LOSS on disposal = $ 17500 – 13200 = $ 4300