Final answer:
Smart Touch Learning records a loss on disposal in their financials after exchanging used equipment with a net book value of $5,000 for new equipment valued at $9,500, along with paying $2,000 cash. The loss is $6,500, which is the difference between the book value plus cash paid and the value of the new equipment.
Step-by-step explanation:
When Smart Touch Learning exchanges used equipment for new equipment, they need to account for this transaction in their financial records. The old equipment has a book value calculated by its historical cost of $15,000 minus the accumulated depreciation of $10,000, resulting in a net book value of $5,000. The new equipment has a market value of $9,500, therefore, Smart Touch Learning must recognize a loss on disposal because the net book value of the old equipment is lower than the market value of the new equipment, and they also paid an additional $2,000 cash.
To record this transaction, Smart Touch Learning would debit Loss on Disposal for the difference between the net book value ($5,000) and the cash paid plus the market value of the new equipment ($11,500), which is $6,500. They would debit New Equipment for the market value of $9,500, credit Cash for $2,000, and credit Accumulated Depreciation for $10,000. Lastly, they would credit the Old Equipment account for its historical cost of $15,000.