Equipment that cost $594000 and has accumulated depreciation of $270000 is exchanged for equipment with a...

Equipment that cost $594000 and has accumulated depreciation of $270000 is exchanged for equipment with a fair value of $432000 and $108000 cash is received. The exchange lacked commercial substance.

The new equipment should be recorded at:

*Please show all work**

The answer is $259,200 but not sure how to get it

Expert Solution

Answer

Particulars	Amount ($)
Cost	594,000
Less: Accumulated depreciation	270,000
Book value	324,000
Fair value (432000+108000)	540,000
Gain ( 540000-324000)	216,000

*Gain recognized = 216000(108000/540000) = $ 43,200**

Following is the required journal entry:

Particulars	Debit ($)	Credit ($)
Accumulated depreciation	$ 270,000
Equipment	$ 259,200
Cash	$ 108,000
Equipment		$ 594,000
Gain on Disposal		$ 43,200

Check:

Particulars	Amount ($)
Fair value	$ 432,000
Less: Deferred gain ( 216000-43200)	$ 172,800
Basis of new equipment	$ 259,200

ekkarill92 answered 2 years ago

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