Answer:
The question is incomplete. There are no options to select from. In any case, the journal entries which would be recorded are as follows:
Option 1: separate entries
Entry 1:
Debit Accumulated depreciation- Equipment(old) $40,000
Credit Equipment(old) $40,000
Entry 2:
Debit Equipment (new) $40,000
Debit Loss on disposal $10,000
Credit Equipment(old) $50,000
Option 2: combined journal entry
Debit Accumulated Depreciation-Equipment(old) $40,000
Debit Equipment (new) $40,000
Debit Loss on disposal $10,000
Credit Equipment(old) $90,000
Step-by-step explanation:
Cheng corporation exchanged traded in old equipment for new equipment. Firstly, the substance (or reason for) the transaction must be established. In this case, Cheng Corporation anticipates to generate future cash flows from this trade in arrangement making this a commercial exchange. In a commercial exchange, the asset received is recorded at fair value. Fair value is the price attached to an asset by market forces of demand and supply.
The journal entries after this exchange are as follows:
First entry: close off accumulated depreciation against the asset to determine book value at date of the exchange:
Debit Accumulated depreciation- Equipment(old) $40,000
Credit Equipment(old) $40,000
After the first journal entry, equipment value in cost account is $50,000($90,000-$40,000)
Second entry: recognise new asset and any gains or losses at the exchange date
Debit Equipment (new) $40,000
Debit Loss on disposal $10,000
Credit Equipment(old) $50,000