Question

Champion Industries exchanged a dust-scrubbing piece of equipment for another version of the same type of equipment and received $12,000 cash. The old dust scrubber cost $76,200 and had a book value of $54,500. The new dust scrubber had a fair value of $58,500. Prepare the journal entry to record the exchange. Assume the exchange has commercial substance.

Answer 1

The journal entry to record the exchange in the industry includes:

• Debit to Cash by $12,000, New dust scrubber by $58,500 and Accumulated depreciation by $21,700
• Credit to Old dust scrubber by $76,200 and Gain on exchange of assets by $16,000.

We have these:

Cash = $ 12,000

New dust scrubber = $ 58,500

Old dust = $76,200

Accumulated depreciation = Cost of old scrubber - Book value

= $76,200-$54,500

= $ 21,700

So, the journal entry to record the exchange in the industry is prepared as follows.

Account titles Debit Credit

Cash $12,000

New dust scrubber $58,500

Accumulated depreciation $21,700

Old dust scrubber $76,200

Gain on exchange of assets $16,000