Question

Equipment costing $73,000 has accumulated depreciation of $54,000. The equipment is a trade-in for new equipment costing $90,191. If the trade-in value received for the old equipment is $15,000, the journal entry to record this transaction is to:

A. debit Equipment (New) for $90,191, debit Accumulated Depreciation - Equipment for $54,000, debit Loss on Exchange of Assets for $19,000, credit Equipment (Old) for $73,000, credit Cash for $90,191.

B. debit Equipment (new) $90,191, credit Cash $90,191.

C. debit Equipment (New) for $90,191, debit Accumulated Depreciation - Equipment for $54,000, credit Equipment (Old) for $73,000 and credit Cash for $90,191.

D. debit Equipment (New) for $90,191, debit Accumulated Depreciation - Equipment for $54,000, debit Loss on Exchange of Assets for $4,000, credit Equipment (Old) for $73,000 and credit Cash for $75,191.

Answer 1

The correct journal entry for a trade-in of old equipment is to debit the new equipment for the purchase price, debit accumulated depreciation for the old equipment, recognize any loss on the exchange, credit the old equipment at original cost, and credit cash for the net amount paid.

Step-by-step explanation:

The subject of this question is the accounting treatment of a trade-in transaction involving a piece of equipment. When dealing with a trade-in, we must account for the cost of the new equipment and remove the old equipment from our books, while also accounting for accumulated depreciation and any gain or loss on the exchange. Additionally, the cash paid and the trade-in value received need to be considered.

To determine the correct journal entry, we calculate the book value of the old equipment by subtracting its accumulated depreciation from its original cost: $73,000 - $54,000 = $19,000. Since the trade-in value received is $15,000, we have a loss of $4,000 ($19,000 book value - $15,000 trade-in value). Therefore, the correct journal entry includes debiting the new equipment for $90,191, debiting accumulated depreciation for $54,000 to remove it from the books, recognizing the loss of $4,000, and crediting the old equipment for its original cost to remove it as well. Additionally, we credit cash for the difference between the new equipment cost and the trade-in value received.

The correct journal entry is:

• Debit Equipment (New) for $90,191
• Debit Accumulated Depreciation - Equipment for $54,000
• Debit Loss on Exchange of Assets for $4,000
• Credit Equipment (Old) for $73,000
• Credit Cash for $75,191