Question

Sheridan Company traded in a manual pressing machine for an automated pressing machine and gave 437000 cash. The old machine cost $459000 and had a net book value of $324000. The old machine had a fair value of $310000. Which of the following is the correct journal entry to record the exchange assuming comercial substance?

a. Equipment 68,000
Loss on Exchange 11,000
Accumulated Depreciation 22,000

Equipment 93,000
Cash 8,000

b. Equipment 68,000
Equipment 60,000
Cash 8,000

c. Cash 8,000
Equipment 60,000
Loss on Exchange 11,000
Accumulated Depreciation 22,000
Equipment 101,000

d. Equipment 123,000
Accumulated Depreciation 22,000
Equipment 93,000
Cash 8,000

Answer 1

Answer and Explanation:

The correct journal entry is shown below

Equipment ($310,000 + $437,000) $747,000

Loss on exchange ($324,000 - $310,000) $14,000

Accumulated depreciation ($459,000 - $324,000) $135,000

To Equipment $459,000

To Cash $437,000

(Being the exchange is recorded)