A company bought new heating system to replace (exchange) its old system that had an original...

A company bought new heating system to replace (exchange) its old system that had an original cost of $43,000 and accumulated depreciation of $36,000. The company also paid $40,000 cash. If the transaction has commercial substance, and the company lost $2,000 in this transaction, then the company should record the new heating system at:

Select one:

a. All answers are wrong.

b. $40,000.

c. $45,000.

d. $42,000.

Solutions

Expert Solution

We writeoff original cost of asset and accumulated depreciation

We pay cash and include new asset in our asset register

Journal entry for replacing an asset

Dr new asset XXXX

Dr accumualted depreciation. 36000

Dr loss on disposal of old asset. 2000

Cr cash paid for new asset 40000

Cr removal of old asset 43000

Total credit = 83000

Total debit= 36000+2000+XXXX

83000=38000+XXXX

XXXX=83000-38000= 45000

Hence company record new heating system at $45000.

ekkarill92 answered 2 years ago

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