Question

On October 1, Bentley Delivery Services acquired a new truck with a list price (fair market value) of $75,000. Bentley Delivery received a trade-in allowance (fair market value) of $24,000 on an old truck of similar type and paid cash of $51,000. The following information about the old truck is obtained from the account in the equipment ledger: cost, $56,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $35,000; annual depreciation, $7,000. Assuming that the exchange has commercial substance.

Required:
Journalize the entries to record:

a. the current depreciation of the old truck to the date of trade-in.
b. the transaction on October 1.

Answer 1

A.

Dr Depreciation Expense—Trucks $5,250

Cr Accumulated Depreciation—Trucks $5,250

B. Dr Accumulated Depreciation—Trucks $40,250

Dr Trucks $75,000

Cr Trucks $56,000

Cr Cash $51,000

Cr Gain on Exchange of Trucks $8,250

Step-by-step explanation:

Preparation of the Journal entries

a. Preparation of the Journal entries to record the current depreciation of the old truck to the date of trade-in.

Dr Depreciation Expense—Trucks $5,250

Cr Accumulated Depreciation—Trucks $5,250

($7,000 × 9/12).

(Being to record the current depreciation of the old truck to the date of trade-in)

b.Preparation of the Journal entries to record transaction on October 1.

Dr Accumulated Depreciation—Trucks $40,250

($35,000+$5,250)

Dr Trucks $75,000

Cr Trucks $56,000

Cr Cash $51,000

Cr Gain on Exchange of Trucks $8,250

($40,250+$75,000-$56,000-$51,000)

(Being to record transaction on October 1)