Question

On December 31, Strike Company traded in one of its batting cages for another one that has a cost of $538,160. Strike receives a trade-in allowance of $31,185. The old equipment had an initial cost of $231,000 and has accumulated depreciation of $196,350. Depreciation has been recorded up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Answer 1

Loss of $3,465

Step-by-step explanation:

the journal entry to record the exchange should be:

Dr Batting cage - new 538,160

Dr Accumulated depreciation - batting cage old 196,350

Dr Loss on exchange 3,465

Cr Cash 506,975

Cr Batting cage old - 231,000

the carrying value of the old batting cage was = $231,000 - $196,350 = $34,650, but it was exchanged at $31,185, which results in a $3,465 loss (= $34,650 - $31,185).