Question

Buffalo Company purchased a heavy-duty truck on July 1, 2014, for $30,360. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,480. The company uses the straight-line method. It was traded on August 1, 2018, for a similar truck costing $42,189; $16,699 was allowed as trade-in value (also fair value) on the old truck and $25,490 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in

Answer 1

Answer:

The answer is given below;

Explanation:

Cost of Truck July 1,2014                 $30,360

Accumulated Depreciation(30,360-6,480)/10=2,388*4=($9,552)

Written Down Value as at August 1 ,2018    $20,808

Truck New   Dr.$42,189

Loss on Old Truck ($20,808-16,699) Dr.$4,109

Accumulated Depreciation                 Dr.$9,552

Cash                                                     Cr.$25,490

Old Truck-Cost                                     Cr.$30,360

There was a loss of $4,109 on old truck as it was traded below its written down value.