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In: Accounting

Arizona Pharmacueticals exchanged laser equipment with a book value of $70,000 and a fair value of...

Arizona Pharmacueticals exchanged laser equipment with a book value of $70,000 and a fair value of $75,000 for the newer model of laser equipment. In addition to the old equipment, $90,000 cash was given. Please display the proper journal entries from Arizona pharmaceuticals' point of view.

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Expert Solution

The journal entry for purchase of equipment in exchange for old is shown below
Date General Journal Debit Credit
Equipment (new) $165,000
    Gain on sale of equipment $5,000
    Equipment (old) $70,000
    Cash $90,000
(To record purchase of equipment)
New equipment would increase the asset of company and thus it is debited
Gain on sale would increase the income and thus credited.
Old equipment given up would decrease the asset and thus it is credited
Cash being asset is credited as there is cash outflow.
Value of new equipment Fair value of new equipment + Cash paid
Value of new equipment 75000+90000
Value of new equipment $165,000
Gain on old equipment Fair value of equipment - Book value
Gain on old equipment 75000-70000
Gain on old equipment $5,000

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