Question

Exercise 10-23 Exchanging assets P5 Gilly Construction trades in an old tractor for a new tractor, receiving a $29,000 trade-in allowance and paying the remaining $83,000 in cash. The old tractor had cost $96,000 and had accumulated depreciation of $52,500. Answer the following questions assuming the exchange has commercial substance. 1. What is the book value of the old tractor at the time of exchange? 2. What is the loss on this asset exchange? 3. What amount should be recorded (debited) in the asset account for the new tractor? Check (2) $14,500

1, 2 and 3 please

Answer 1

1. Book value of the old tractor at the time of exchange = Cost - Accumulated Depreciation = $96,000 - $52,500 = $43,500

2. Loss on this asset exchange = Book value of the old tractor at the time of exchange - Trade-in allowance = $43,500 - $29,000 = $14,500 (loss)

3. Amount recorded (debited) in the asset account for the new tractor = Trade-in allowance + Remaining cash payment = $29,000+ $83,000 = $112,000

The entry of exchange of old tractor with new tractor will be:

New Tractor Dr 112,000

To Old Tractor 29,000

To Cash 83,000