Question

On december 31, slugger batting cages company decides to trade in one of its batting cages for another one that has a cost of $500,000. the seller of the batting cage is willing to allow a trade-in amount of $12,000. the initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. depreciation has been taken up to the end of the year. the difference will be paid in cash. what is the amount of boot in this transaction?
a. $488,000


b. $18,000


c. $470,000


d. $500,000

Answer 1

Answer:

A) $488,000

Explanation:

cost of new batting cage = $500,000

trade in amount for old batting cage = $12,000

book value of old batting cage = $225,000 - $195,000 = $30,000

The boot in this transaction is how much money you are going to pay on top of exchanging your asset:

boot value = cost of batting cage - trade in amount = $500,000 - $12,000 = $488,000

the journal entry should be:

Dr Batting cage - new 500,000

Dr Accumulated depreciation old batting cage 195,000

Dr Loss on the exchange 18,000

    Cr Cash 488,000 ⇒ BOOT

    Cr Old batting cage 225,000

Answer 2

Answer:

The answer is A) $488 000

Explanation:

The current carrying amount of the batting cage is $30 000 ( 225000 - 195000 ). Although the cage is only being traded in for $12000. The $18000 is regarded as loss to the company trading in the batting cage.

The value of the boot is therefore the amount of batting cage acquired less the trade in value of $ 18000. We thus get to an amount of $ 488000