Question

Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $19,384 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid $19,384 cash and traded in used equipment. The used equipment had originally cost $150,226; it had a book value of $101,766 and a secondhand fair value of $115,819, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $2,665.

1) Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance.
2) Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable. Prepare the general journal entry to record this transaction.

Answer 1

A) Dr Equipment $137,868

Dr Accumulated Depreciation $48,460

Cr Equipment $150,226

Cr Cash $22,049

Cr Gain on disposal $14,063

B) Dr Equipment $123,815

Dr Accumulated Depreciation $48,460

Dr Equipment $150,226

Dr Cash $22,049

Step-by-step explanation:

Preparation of the journal entries

A) Dr Equipment $137,868

($115,819+$19,384+$2,665)

Dr Accumulated Depreciation $48,460

($150,226-$101,766)

Cr Equipment $150,226

Cr Cash $22,049

($19,384+$2,665)

Cr Gain on disposal $14,063

($137,868+$48,460-$150,226-$22,049)

B) Dr Equipment $123,815

($150,226+22,049-48,460)

Dr Accumulated Depreciation $48,460

($150,226-$101,766)

Dr Equipment $150,226

Dr Cash $22,049

($19,384+$2,665)