Question 17 options: St. Paulie Inc. has equipment with an original cost of $52,500 and accumulated...

Question 17 options: St. Paulie Inc. has equipment with an original cost of $52,500 and accumulated depreciation of $20,500. This equipment was traded in for new equipment equipment with a price of $50,000. The old equipment had a fair value of $25,000. St. Paulie is given a trade in allowance of $30,000 and pays $20,000 cash for the new equipment. This transaction does have commercial substance. Is there a gain or a loss on this trade? (type gain or type loss) What is the amount of the gain/loss? ( do not include dollar signs, commas, or decimals points in your answer) At what amount is the new piece of Equipment recorded? (do not use dollar signs, commas, or decimals in your answer)

Expert Solution

a) Yes, this transaction has a commercial substance because the future cash flows are expected to be changed as a result of this transaction.

b) Loss

There is a loss of 2000 in this trade

New Equipment 50000

Loss on exchange 2000

Cash paid 20000

Written down value old Equipment 32000

_______________

52000 52000

c) New Equipment price is recorded at 50000

Cash paid = 20000

Trade in allowance Received = 30000

Equipment value = 50000

ekkarill92 answered 2 years ago

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