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Chapter 9: Q16SE (page 528)

Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation’s exchange of equipment. Assume the exchange had commercial substance.

Short Answer

Expert verified

The gain or loss on exchanging of an equipment value is$1,100.

Step by step solution

01

Meaning of Plant Asset

Plant assets can be defined as all those assets that are employed in the business for their long-term use. It includes the machine acquired for the production of goods.

02

Calculate Exchange of Plant Asset

Particulars

Amount ($)

Amount ($)

Market Value of Asset

$25,100

Less:

Book value of asset

$3,000

Cash paid

23,200

(26,200)

Gain or loss

$ 1,100

03

Journal entry for White corporation’s exchange

Date

Particulars

$ Debit

$ Credit

1 Jan 2018

New equipment

25,100

Accumulated depreciation

19,000

Loss on exchange of equipment

1,100

Cash

23,200

Equipment (Old)

22,000

(To record the exchange of assets)

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Most popular questions from this chapter

What is an intangible asset? Provide some examples

Define property, plant, and equipment. Provide some examples.

: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:

a. Purchase price.

b. Ordinary recurring repairs to keep the machinery in good working order.

c. Lubrication before machinery is placed in service.

d. Periodic lubrication after machinery is placed in service.

e. Major overhaul to extend useful life by three years.

f. Sales tax paid on the purchase price.

g. Transportation and insurance while machinery is in transit from seller to buyer.

h. Installation.

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure

How does a business decide which depreciation method is best to use?

What is depreciation? Define useful life, residual value, and depreciable cost.
See all solutions

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