Honest Truck Company is a large trucking company that operates throughout the Un

Question

Honest Truck Company is a large trucking company that operates throughout the United States. Honest Truck Company uses the units-of-production (UOP) method to depreciate its trucks. Honest Truck Company trades in trucks often to keep driver morale high and to maximize fuel economy. Consider these facts about one Mack truck in the company's fleet: When acquired in 2012, the tractor-trailer rig cost $440,000 and was expected to remain in service for 10 years or 1,000,000 miles. Estimated residual value was $20,000. During 2012, the truck was driven 83,000 miles; during 2013,93,000 miles; and during 2014,103,000 miles. After 41,000 miles in 2015, the company traded in the Mack truck for a less-expensive Freightliner with a sticker price of $220,000. Honest Truck Company paid cash of $23,000. Requirements Determine Honest's gain or loss on the transaction. Prepare the journal entry to record the trade-in of the old truck on the new one. Requirement 1. Determine Honest's gain or loss on the transaction. Begin by determining the formula needed to calculate the gain or loss and then complete the calculation to determine the amount. (Use a minus sign or parentheses for a loss. Round depreciation per unit to the nearest cent.) Requirement 2. Prepare the journal entry to record the trade-in of the old truck on the new one. (Record debits first, then credits. Explanations are not required.)

Explanation / Answer

Calculation of Depreciation Charged Year Miles Dep. 2012                  83,000               34,860 2013                  93,000               39,060 2014               103,000               43,260 2015                  41,000               17,220 Total               320,000             134,400 Calculation of Gain /(Loss) on Exchange of Truck Purchase Value of Truck           440,000 Less: Depreciation Charged (2012 to 2015)           134,400 Book Value of Truck in 2015           305,600 Exchange Value of Old Truck (220000 - 23000)           197,000 Gain / (Loss) on exchange of Truck         (108,600) Journal Entry Date Particulars Dr. Amt Cr. Amt 2015 Truck - New                                       Dr.          220,000 Accumulated Dep - Truck            Dr.          134,400 Loss on Exchange of Truck           Dr.          108,600    To Truck - Tractor Trailer          440,000    To Cash            23,000 (Record the exchange of Truck and the loss on exchange)

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