Problem: On January 1, 2020, CCH Inc. exchanged its equipment for a delivery truck. CCH’s equipment had been purchased for $95,000 3 years ago (on January 1, 2017) and has been depreciated using the straight-line method with an estimated 5 year useful life and estimated residual of $5,000. Therefore, the balance in Accumulated Depreciation on January 1, 2020 is $54,000. On January 1, 2020, the CCH’s equipment fair value is $43,500 and the delivery truck’s fair value is $44,500. Cash of $1,000 was also paid by CCH in the exchange. Assume this exchange has commercial substance. Required: Record the journal entry in CCH’s books to record the exchange of assets on January 1, 2020.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Problem: On January 1, 2020, CCH Inc. exchanged its equipment for a delivery truck.
CCH’s equipment had been purchased for $95,000 3 years ago (on January 1, 2017) and has been
On January 1, 2020, the CCH’s equipment fair value is $43,500 and the delivery truck’s fair value is $44,500. Cash of $1,000 was also paid by CCH in the exchange. Assume this exchange has commercial substance.
Required:
Record the
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