Question

Equipment costing $120,000 has accumulated depreciation of $97,000. The equipment is a trade-in for new equipment costing $190,000. If the trade-in value received for the old equipment is $36,000, the journal entry to record this transaction is to:

A. debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, debit Loss on Exchange of Assets for $23,000, credit Equipment (Old) for $120,000, credit Cash for $190,000.

B. debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, credit Gain on Exchange of Assets for $13,000, credit Equipment (Old) for $120,000 and credit Cash for $154,000.

C. debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, credit Equipment (Old) for $120,000 and credit Cash for $167,000.

D. debit Equipment (New) for $190,000, and credit Cash for $190,000.

Answer 1

Option B is the correct journal entry for the exchange of old equipment for new equipment. It accurately reflects the book value of the old equipment, the gain on exchange, and the cash paid after considering the trade-in value.

Step-by-step explanation:

The student has asked for the correct journal entry to record the trade-in of old equipment for new equipment. To determine the correct entry, we need to calculate any gain or loss on the exchange and record the various components of the transaction properly. The book value of the old equipment is the cost minus accumulated depreciation, which is $120,000 - $97,000 = $23,000. The trade-in value is $36,000, indicating a gain since the trade-in value is higher than the book value of the old equipment by $13,000.

Based on this information, option B is the correct entry: Debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, credit Gain on Exchange of Assets for $13,000, credit Equipment (Old) for $120,000, and credit Cash for $154,000. The gain is calculated by subtracting the book value of the old equipment ($23,000) from its trade-in value ($36,000).

Answer 2

The correct journal entry to record this transaction is Option B: debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, credit Gain on Exchange of Assets for $13,000, credit Equipment (Old) for $120,000, and credit Cash for $154,000.

Step-by-step explanation:

The correct journal entry to record this transaction is Option B: debit Equipment (New) for $190,000, debit Accumulated Depreciation - Equipment for $97,000, credit Gain on Exchange of Assets for $13,000, credit Equipment (Old) for $120,000, and credit Cash for $154,000.

When we trade in old equipment for new equipment, we need to account for the trade-in value and any gain or loss. Here, the new equipment is recorded at its cost of $190,000, while the old equipment is removed from the books by debiting Accumulated Depreciation - Equipment for $97,000 and Equipment (Old) for $120,000. The gain on the exchange is calculated as the trade-in value received minus the book value of the old equipment, which is $13,000 ($36,000 - $23,000). This gain is credited to Gain on Exchange of Assets. Finally, Cash is credited for the net amount received, which is $154,000 ($190,000 - $36,000).