Question

1On January 3, Carothers Corporation acquired $200,000 in new equipment in exchange for cash of $170,000 cash and a trade-in of old equipment. That old equipment originally cost $180,000 and had accumulated depreciation of $160,000; it had a book value of $20,000 at the time of exchange. This exchange of assets has commercial substance. The Cash account will be credited for $170,000. (That credit could not be shown below.) Prepare the journal entry.

Answer 1

Answer:

The journal entry:

Debit Accumulated depreciation $160,000

Debit Equipment $200,000

Credit Cash $170,000

Credit Equipment $180,000

Credit Gain on exchange asset $10,000

Explanation:

The old equipment had a book value of $20,000 at the time of exchange. The company paid $170,000 cash and a trade-in of old equipment.

The new equipment costs of $200,000.

Carothers Corporation will record gain on exchange by the journal entry:

Debit Accumulated depreciation $160,000

Debit Equipment $200,000

Credit Cash $170,000

Credit Equipment $180,000

Credit Gain on exchange asset $10,000