Question

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000, at what cost will the new equipment be recorded in the books?

Answer 1

Answer:

$51,000

Explanation:

The computation of the new equipment cost is shown below:

= Fair market value + loss recorded

where,

Fair market value is $50,000

And, the loss is computed by taking the difference between the cost and accumulated depreciation. And, after that deduct it from the trade in allowance

In mathematically,

Book value = Cost - accumulated depreciation

                   = $41,000 - $36,000

                   = 5,000

Now, the loss would be

= Trade in allowance - book value

= $4,000 - $5,000

=  ($1,000)

Now put these values to the above formula

So, the value would be equal to

= $50,000 + $1,000

= $51,000