Question

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries? 1. Credit gain on exchange of asset $4000 2. Credit equipment $100,000 3. Debit accumulated depreciation $60,000 4. Debit equipment $80,000 5. Debit equipment $65,000 6. Credit equipment $80,000 7. Credit accumulated depreciation $60,000

Answer 1

Answer:

2. Credit equipment $100,000

3. Debit accumulated depreciation $60,000

Explanation:

When a company trades with another pieces of equipment gain or losses are recognized when there is commercia lsubstance. If not, then the trade-in equipment is posted as the net book value of the old equipment

In both cases, the old equipment is write-off  thus:

credit equipment for 100,000

and debit accumualted overhead for 60,000

Now, we look at the option that matches this. The information about the new assets is insuficient as we aren't given information about whether or not thre is commercial substance