Question

Sunland Company purchased a heavy-duty truck on July 1, 2017, for $29,400. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $5,880. The company uses the straight-line method. It was traded on August 1, 2021, for a similar truck costing $41,160; $15,680 was allowed as trade-in value (also fair value) on the old truck and $25,480 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in

Answer 1

Dr Trucks (New) $41,160

Dr Accumulated Depreciation $9,604

Dr Loss on Disposal $4,116

Cr Cash $25,480

Cr Trucks (Old)$29,400

Step-by-step explanation:

Preparation of the Journal entry to record the trade-in

Dr Trucks (New) $41,160

Dr Accumulated Depreciation $9,604

($29,400-$5,880*49 months/120 months)

Dr Loss on Disposal $4,116

($29,400-$9,604-$15,680)

Cr Cash $25,480

Cr Trucks (Old)$29,400