Question

When a company exchanges machinery and receives a trade-in allowance less than the book value, this

transaction would be recorded with the following entry:
a. debit Cash and Machinery; credit Accumulated Depreciation
b. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
c. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
d. debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and cash

Answer 1

The correct answer is D

Step-by-step explanation:

The journal entry would be:

Machinery A/c.......................................Dr XXXX

Accumulated Depreciation A/c........Dr XXXX

Loss on Disposal A/c.............................Cr XXXX

Machinery and Cash A/c.......................Cr XXXX

As the company is exchanging the machinery and receiving the trade in allowance, so will be debiting the machinery and the accumulated depreciation account. And on exchanging had loss as it is less than the book value so the Loss on Disposal account is credited. And the remaining balance will be posted the machinery and the cash account.