In: Accounting
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.
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 | |||