Question

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  

Answer 1

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)