On July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $220,000

On July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $220,000. Twin Pines received a trade-in allowance (fair market value) of $45,000 on the old equipment of a similar type and paid cash of $175,000. The following information about the old equipment is obtained from the account in the equipment ledger: cost, $180,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $120,000; annual depreciation, $12,000. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on July 1.


Answer:










a.
 Depreciation Expense—Equipment 6,000
Accumulated Depreciation—Equipment 6,000
Equipment depreciation ($12,000 × 6/12).
b.
 Accumulated Depreciation—Equipment 126,000
Equipment 220,000
Loss on Exchange of Equipment 9,000
Equipment 180,000
Cash 175,000




Assume the same facts as in Exercise 10-25, except that the book value of the press traded in is $108,500. (a) What is the amount of cash given? (b) What is the gain or loss on the exchange?


Answer:















a. Price (fair market value) of new equipment………………………… $275,000
Trade-in allowance of old equipment………………………………… 90,000
Cash paid on the date of exchange………………………………… $185,000
b. Fair market value (trade-in allowance) of old equipment………… $ 90,000
Less book value of old equipment…………………………………… 108,500
Gain on exchange of equipment……………………………………… $ (18,500)
or
Price (fair market value) of new equipment………………………… $275,000
Less assets given up in exchange:
Book value of old equipment……………………………………… $108,500
Cash paid on the exchange………………………………………… 185,000 293,500
Loss on exchange of equipment……………………………………… $ (18,500)