Question

Flint Corporation traded a used truck (cost $26,000, accumulated depreciation $23,400) for a small computer with a fair value of $4,290. Flint also paid $650 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)

Answer 1

The journal entry to record the exchange:

Debit Accumulated depreciation $23,400

Debit Computer $4,290

Credit Cash $650

Credit Truck $26,000

Credit Gain on exchange asset $1,040

Step-by-step explanation:

Book value of the truck = $26,000 - $23,400 = $2,600

Flint Corporation paid $650 in the transaction

Book value of the truck + Amount of Cash Flint paid = $2,600 + $650 = $3,250 < fair value of the computer

The company will record gain on exchange by the entry

Debit Accumulated depreciation $23,400

Debit Computer $4,290

Credit Cash $650

Credit Truck $26,000

Credit Gain on exchange asset $1,040