A printing press priced at a fair market value of $275,000 is acquired in a transaction that has commercial substance by trading in a similar press and paying cash for the difference between the trade-in allowance and the price of the new press.a. Assuming that the trade-in allowance is $90,000, what is the amount of cash given?b. Assuming that the book value of the press traded in is $68,000, what is the gain or loss on the exchange?Answer:
a. Price (fair market value) of new equipment………………………… $275,000Trade-in allowance of old equipment………………………………… 90,000Cash paid on the date of exchange………………………………… $185,000b. Fair market value (trade-in allowance) of old equipment………… $ 90,000Less book value of old equipment…………………………………… 68,000Gain on exchange of equipment……………………………………… $ 22,000orPrice (fair market value) of new equipment………………………… $275,000Less assets given up in exchange:Book value of old equipment……………………………………… $ 68,000Cash paid on the exchange………………………………………… 185,000 253,000
On October 1, Bentley Delivery Services acquired a new truck with a list price (fair market value) of $75,000. Bentley Delivery received a trade-in allowance (fair market value) of $24,000 on an old truck of similar type and paid cash of $51,000. The following information about the old truck is obtained from the account in the equipment ledger: cost, $56,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $35,000; annual depreciation, $7,000. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old truck to the date of trade-in and (b) the transaction on October 1.Answer:
a.
Depreciation Expense—Trucks 5,250Accumulated Depreciation—Trucks 5,250Truck depreciation ($7,000 × 9/12).
b.
Accumulated Depreciation—Trucks 40,250Trucks 75,000Trucks 56,000Cash 51,000Gain on Exchange of Trucks 8,250
