Question

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which entries?

Answer 1

Answer:

Dr Equipment account 50,000

Dr Loss on Exchange account 30,000

Dr Accumulated Depreciation Equipment account 40,000

Cr Equipment account 120,000

Explanation:

Old equipment is being disposed off, so it should be credited (equipment is an asset account, and when asset decrease they are credited).

New equipment is being purchased, so it should be debited (equipment is an asset account, and when asset increase they are debited).