Question

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Answer 1

Credit equipment $90,000

Debit accumulated depreciation $70,000

Step-by-step explanation:

Answer 2

The complete journal entry should be:

Dr Equipment account 50,000

Dr Accumulated Depreciation account 70,000

Cr Gain on Exchange of Asset account 30,000

Cr Equipment account 90,000

Step-by-step explanation:

The new equipment must be recorded at fair market value ($50,000) which results in a net gain = $50,000 - ($90,000 - $70,000) = $30,000