Question

Larkspur, Inc. exchanges old delivery equipment for new delivery equipment. The book value of the old delivery equipment is $36,900 (cost $66,400 less accumulated depreciation $29,500). Its fair value is $45,500, and cash of $5,300 is paid. Prepare the entry to record the exchange.

Answer 1

The entry to record the exchange of the delivery equipment would be as follows: Debit New Delivery Equipment $45,500, Credit Old Delivery Equipment $36,900, Credit Accumulated Depreciation $29,500, Credit Cash $5,300, and Credit Gain on Exchange $8,400.

Step-by-step explanation:

The entry to record the exchange of the delivery equipment would be as follows:

Debit New Delivery Equipment $45,500

Credit Old Delivery Equipment $36,900

Credit Accumulated Depreciation $29,500

Credit Cash $5,300

Credit Gain on Exchange $8,400

To record the exchange, the old delivery equipment is removed from the books at its book value of $36,900. The new delivery equipment is recorded at its fair value of $45,500. Since cash is paid as part of the exchange, it is also credited. Lastly, the gain on the exchange of $8,400 is recognized as income.

The entry above reflects both the removal of the old equipment and the addition of the new equipment, as well as the recognition of the gain on the exchange.

Answer 2

Account Credit Debit

Equipment (new) $50,800

Accumulated Depreciation $29,500

Equipment (old) $66,400

Gain on disposal of asset $8,600

Cash $5,300