Question

Navajo Corporation traded a used truck (cost $25,000, accumulated depreciation $22,500) for a small computer worth $4,125. Navajo also paid $625 in the transaction.

Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.

Answer 1

Calculation of Gain or Loss:

Book Value of Truck:

= 25,000 - 22,500

= $2,500

Gain on Exchange:

= 4,125 - 2,500 - 625

= $1,000

Therefore, the journal entry is as follows:

Accumulated Depreciation A/c Dr. $22,500

computer A/c Dr. $3,125

To Truck $25,000

To Cash $625

(To record the Truck)