Ramond Construction trades in an old tractor for a new tractor, receiving a $24,
ID: 2422629 • Letter: R
Question
Ramond Construction trades in an old tractor for a new tractor, receiving a $24,500 trade-in allowance and paying the remaining $73,500 in cash. The old tractor had cost $75,000, and straight-line accumulated depreciation of $40,625 had been recorded to date under the assumption that it would last eight years and have a $10,000 salvage value. Answer the following questions assuming the exchange has commercial substance.
What is the book value of the old tractor at the time of exchange? (Omit the "$" sign in your response.)
What is the loss on this asset exchange? (Input the amount as positive value. Omit the "$" sign in your response.)
What amount should be recorded (debited) in the asset account for the new tractor? (Omit the "$" sign in your response.)
Ramond Construction trades in an old tractor for a new tractor, receiving a $24,500 trade-in allowance and paying the remaining $73,500 in cash. The old tractor had cost $75,000, and straight-line accumulated depreciation of $40,625 had been recorded to date under the assumption that it would last eight years and have a $10,000 salvage value. Answer the following questions assuming the exchange has commercial substance.
Explanation / Answer
1./
BOOK VALUE = COST OF TRACTOR - ACCUMULATED DEPRICIATION
= $75000 - $40625
= 34375
2./
LOSS ON THE EXCHANGE = TRADE IN ALLOWANCE - BOOK VALUE
= $24500 - $34375
= 9875
3./
AMOUNT DEBITED = TRADE IN ALLOWANCE + CASH PAYMENT
= $24500 + 73500
= $98000
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