Question

Select all that apply

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Multiple select question.

Debit equipment $50,000


Debit equipment $32,000


Debit accumulated depreciation $40,000


Credit accumulated depreciation $40,000


Credit equipment $120,000


Debit loss on exchange $30,000

Answer 1

Step-by-step explanation:

To record the exchange of old equipment for new equipment, you need to account for the old equipment's original cost, accumulated depreciation, the fair value and book value of the new equipment, and any gain or loss on the exchange. The journal entry for this exchange would include the following entries:

1. Debit equipment $50,000 - This accounts for the fair value of the new equipment.

2. Debit accumulated depreciation $40,000 - This removes the accumulated depreciation related to the old equipment.

3. Credit equipment $120,000 - This removes the original cost of the old equipment.

4. Debit loss on exchange $10,000 - This represents the loss on the exchange, calculated as the difference between the book value of the old equipment and the fair value of the new equipment.

So, the correct entries are:

- Debit equipment $50,000

- Debit accumulated depreciation $40,000

- Credit equipment $120,000

- Debit loss on exchange $10,000

The other options are not part of the correct journal entry for this exchange.