Question

Reus Truck Company replaces the tires of its trucks. The new tires have a price of $127,000. The old tires have an original cost of $144,000 and accumulated depreciation of $128,000. Reus gave the old tires and $111,000 cash for the new tires. What is the effect of the entry to record the replacement on total assets?

Multiple Choice

• Decrease of $17,000

• No effect

• Increase of $16,000

• Decrease of $11,000

• Increase of 111,000

Answer 1

CALCULATION OF BOOK VALUE OF THE TYRE REPLACE
Value of the tires of Trucks	$1,44,000
Less: Accumualted Depreciation	$1,28,000
Net Book value of the assets	$16,000
CALCULATION OF NET IMPACT ON TOTAL ASSET
Total Assets Given on this purchase:
Cash	$1,11,000
Add: Reus gave the old tyres also of book value	$16,000
Total reduction of assets (A)	$1,27,000
In exchange of this Reus is get the new tyres value of (B)	$1,27,000
Difference (A-B)	$0.00
It menas there is no increase or decrease in total assets
Answer = Option 2 = No Effect