Question

On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of 500,000. The seller of the batting cage is willing to allow a trade-in amount of 11,000. The initial cost of the old equipment was 215,000 with an accumulated depreciation of 185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Answer 1

The loss on the trade-in of Strike Company's old batting cage is $19,000, which is the difference between the net book value and the trade-in value. They will pay $489,000 in cash for the new equipment.

Step-by-step explanation:

To determine the gain or loss on the trade-in of old equipment, we need to calculate the net book value of the old batting cage and compare it to the trade-in value offered.

The net book value is the initial cost minus the accumulated depreciation.

In this case, the initial cost was $215,000, and the accumulated depreciation was $185,000, leaving a net book value of $30,000 ($215,000 - $185,000).

The trade-in value is $11,000.

Therefore, the loss on the trade-in is the net book value minus the trade-in value, which is $19,000 ($30,000 - $11,000).

The total amount paid in cash for the new equipment is the cost of the new equipment minus the trade-in value, which is $489,000 ($500,000 - $11,000).