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.

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

ekkarill92 answered 2 years ago

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