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Chapter 10: 8BE (page 502)

Navajo Corporation traded a used truck (cost \(20,000, accumulated depreciation \)18,000) for a small computer with a fair value of \(3,300. Navajo also paid \)500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)

Short Answer

Expert verified

Equipment is debited by $3,300, accumulated depreciation is debited by $18,000, trucks are credited by $20,000, cash is credited by $500 and gain on disposal of trucks is debited by $800 to record the exchange of trucks for equipment.

Step by step solution

01

Calculation of gain on disposal of trucks

GainonDisposalofTrucks=Equipment+AccumulatedDepreciation-Truck+Cash=$3,300+$18,000-$20,000+$500=$800

02

Journal entry of purchase of truck

Date

Particulars

Debit ($)

Credit ($)

Equipment

$3,300

Accumulated depreciation

$18,000

To Trucks

$20,000

To Cash

$500

To Gain on disposal of truck

$800

To record the exchange of trucks

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Most popular questions from this chapter

Question: Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance. In the second situation, the exchange lacks commercial substance. Explain to Stan the differences in accounting for these two situations.

Magilke Industries acquired equipment this year to be used in its operations. The equipment was delivered by the suppliers, installed by Magilke, and placed into operation. Some of it was purchased for cash with discounts available for prompt payment. Some of it was purchased under long-term payment plans for which the interest charges approximated prevailing rates. What costs should Magilke capitalize for the new equipment purchased this year? Explain.

Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for \(5,200 instead of \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.

Previn Brothers Inc. purchased land at a price of \(27,000. Closing costs were \)1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?

(Nonmonetary Exchanges) On August 1, Hyde, Inc. exchanged productive assets with Wiggins, Inc. Hyde’s asset is referred to below as “Asset A,” and Wiggins’ is referred to as “Asset B.” The following facts pertain to these assets.

Asset A

Asset B

Original cost

\(96,000

\)110,000

Accumulated depreciation (to date of exchange)

40,000

47,000

Fair value at date of exchange

60,000

75,000

Cash paid by Hyde, Inc.

15,000

Cash received by Wiggins, Inc.

15,000

Instructions

  1. Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Hyde, Inc. and Wiggins, Inc. in accordance with generally accepted accounting principles.
  2. Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Hyde, Inc. and Wiggins, Inc. in accordance with generally accepted accounting principles.
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