Question

[9] UVW, Inc. had an old piece of equipment that had cost $500,000. The CFO wanted to trade-in the
old piece of equipment for a new piece of the same equipment. At the time of the trade-in, the
controller had recorded accumulated depreciation of $400,000. The fair market value of the old piece
of equipment at the date of the trade-in was $150,000. In order to acquire the new piece of equipment
the controller had to also cut a check to the vendor of the new equipment in the amount of $430,000.
What is the entry the controller made to the books. MAKE SURE YOU DESIGNATE EACH PIECE
OF EQUIPMENT AS OLD OR NEW, OR YOU WILL LOSE POINTS.

Answer 1

Exchange
	UVW, Inc
Cost	500,000
Acc Dep	400,000
Net	100,000
FMV	150,000
Cash received (paid)	-430,000
Assumed Commercial substance exists
UVW, Inc
	Debit	Credit
Accumulated Depreciation-Old	400,000
New Machinery	580,000		Fair value of asset surrendered + Cash paid
Gain on exchange		50,000	Balancing figure
Old Machinery		500,000
Cash		430,000
Cost of an asset acquired
= Fair value of the asset surrendered
+ Cash (boot) paid
- Cash (boot) received
Gain or loss on exchange
= Fair value of the asset surrendered
- Book value of the asset surrendered