Question

A company purchased equipment valued at $310,000. It traded in old equipment for a $121,000 trade-in allowance and the company paid $189,000 cash with the trade-in. The old equipment cost $300,000 and had accumulated depreciation of $180,000. This transaction has commercial substance. What is the recorded value of the new equipment?

a. $120,000.b. $121,000.c. $189,000.d. $309,000.e. $310,000.

Answer 1

e. $310,000

Step-by-step explanation:

If the exchange transaction has commercial substance the new equipment acquired is measured at the fair value of the asset given up plus fair value of any other assets transferred.

Value of the new equipment = Trade in Allowance + Cash paid

= $121,000 + $189,000

= $310,000