Question

In: Accounting

1. On Feb 1 2019, ABC Co. traded in an old piece of equipment that originally...

1. On Feb 1 2019, ABC Co. traded in an old piece of equipment that originally cost $32,000 with a salvage value of $2000 and a useful life of 5 years for a new upgraded model that had a cash price of $40,000. The company uses straight-line depreciation and the original equipment was purchased on Feb 1, 2015. (10 points) A) Prepare the journal entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance was paid in cash.(B) Prepare the journal entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance was paid in cash.

(A) General Journal Debit Credit

(B) General Journal  

Solutions

Expert Solution

Annual dep:
cost of old assets 32000
Less: Salvage value 2000
Depreciable cost 30000
Divide: Life 5
Annual dep: 6000
Accumulated dep for 4 years 24000
Journal entries
S.no. Accounts title and explanations Debit $ Credit $
a. New equipment 40000
Accumulated depreciation 24000
Loss on sale of Assets 3,000
     Old equipment 32,000
     Cash 35,000
(for cash paid for exchange of assets)
b. New equipment 40000
Accumulated depreciation 24000
     Gain on sale of assets 4500
     Old equipment 32,000
     Cash 27,500
(for cash paid for exchange of assets)

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