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A company trades a truck which cost $20,000 and has accumulated depreciation of $6,000, for a new equipment (machine) which has a list price of $25,000. The regional distributor of the equipment allows a $23,000 trade-in, and $2,500 is paid in cash. The truck being traded-in could be sold for $15,000 in the well-established second-hand market.

A company trades a truck which cost $20,000 and has accumulated depreciation of $6,000, for a new equipment (machine) which has a list price of $25,000. The regional distributor of the equipment allows a $23,000 trade-in, and $2,500 is paid in cash. The truck being traded-in could be sold for $15,000 in the well-established second-hand market.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company trades a truck which cost $20,000 and has accumulated depreciation of $6,000, for a new equipment (machine) which has a list price of $25,000. The regional distributor of the equipment allows a $23,000 trade-in, and $2,500 is paid in cash. The truck being traded-in could be sold for $15,000 in the well-established second-hand market. 43) The fair value of the new machine acquired to be used in the journal entry to record the trade and acquisition is: a) 25,000 b) 23,000 c) 17,000 d) 16,000 e) None of the above The fair value of the new truck is $15,000+ $2,500 = $17,500. The fair value of the new truck is not evident (list prices are seldom the final negotiated fair value). This is a non-monetary exchange where the economic situation has not changed: there is little monetary consideration involved in this exchange and there is no reason to expect the risks, timing or amounts of future cash flows of the business would be altered by this exchange. Losses, but not gains should be recognized in a non-monetary exchange such as this one. 44) The journal entry to record the trade and acquisition will show the following: a) Dr Cash $2,500 b) Dr Accumulated Depreciation $6,000 c) Dr Loss on Disposition $1,000 d) Dr Truck $20,000 e) None of the above 45) The journal entry to record the trade and acquisition will show the following: a) Cr Loss on Disposal $500 b) Cr Accumulated Depreciation $6,000 c) Cr Gain on Disposition $1,000 d) Cr Machine (new) $23,000 e) None of the above Debit Machine New .... Debit Accumulated Depreciation...........$6,000 Credit Gain on Disposition.. Credit Truck Old.... Credit Cash .... .$17,000 .$ 500 .$20,000 ..$ 2,500
Transcribed Image Text:A company trades a truck which cost $20,000 and has accumulated depreciation of $6,000, for a new equipment (machine) which has a list price of $25,000. The regional distributor of the equipment allows a $23,000 trade-in, and $2,500 is paid in cash. The truck being traded-in could be sold for $15,000 in the well-established second-hand market. 43) The fair value of the new machine acquired to be used in the journal entry to record the trade and acquisition is: a) 25,000 b) 23,000 c) 17,000 d) 16,000 e) None of the above The fair value of the new truck is $15,000+ $2,500 = $17,500. The fair value of the new truck is not evident (list prices are seldom the final negotiated fair value). This is a non-monetary exchange where the economic situation has not changed: there is little monetary consideration involved in this exchange and there is no reason to expect the risks, timing or amounts of future cash flows of the business would be altered by this exchange. Losses, but not gains should be recognized in a non-monetary exchange such as this one. 44) The journal entry to record the trade and acquisition will show the following: a) Dr Cash $2,500 b) Dr Accumulated Depreciation $6,000 c) Dr Loss on Disposition $1,000 d) Dr Truck $20,000 e) None of the above 45) The journal entry to record the trade and acquisition will show the following: a) Cr Loss on Disposal $500 b) Cr Accumulated Depreciation $6,000 c) Cr Gain on Disposition $1,000 d) Cr Machine (new) $23,000 e) None of the above Debit Machine New .... Debit Accumulated Depreciation...........$6,000 Credit Gain on Disposition.. Credit Truck Old.... Credit Cash .... .$17,000 .$ 500 .$20,000 ..$ 2,500
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