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 trading equipments to determinate if there is or not a gain or loss we have to know if there is commercial substrance.

When that is the case then, we can post the difference in value as gain or loss.

When there isn't, we enter the new equipment for the amount of the net book value of the equipment to avoid recording gain or losses.

Equipment (new)                80,000 debit

Acc Dep- Equipment (old) 60,000 debit

             Equipment(old)               100,000 credit

             Gain at Disposal               40,000 credit

--to record when there is commercial substance--

Equipment (new)                40,000 debit

Acc Dep- Equipment (old) 60,000 debit

             Equipment(old)               100,000 credit

--to record when there isn't--

In both cases, whe have to write-off the old equipment thus, debit the accumulated depreciation balance.

and credit the old equipment cost