On January 2, 2010, ABC Co. purchased a work truck for $45,000 cash. The truck h

Question

On January 2, 2010, ABC Co. purchased a work truck for $45,000 cash. The truck had an estimated useful life of 7 years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2014 accumulated depreciation was $28,000 under each of the following assumptions:
A. The truck and $45,000 cash was given in exchange for a new work truck that had a cash price of $60,000. This transaction has commercial substance.
B. The truck and $40,000 were exchanged for a new work truck that had a cash price of $60,000. This transaction lacks commercial substance. On January 2, 2010, ABC Co. purchased a work truck for $45,000 cash. The truck had an estimated useful life of 7 years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2014 accumulated depreciation was $28,000 under each of the following assumptions:
A. The truck and $45,000 cash was given in exchange for a new work truck that had a cash price of $60,000. This transaction has commercial substance.
B. The truck and $40,000 were exchanged for a new work truck that had a cash price of $60,000. This transaction lacks commercial substance. On January 2, 2010, ABC Co. purchased a work truck for $45,000 cash. The truck had an estimated useful life of 7 years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2014 accumulated depreciation was $28,000 under each of the following assumptions:
A. The truck and $45,000 cash was given in exchange for a new work truck that had a cash price of $60,000. This transaction has commercial substance.
B. The truck and $40,000 were exchanged for a new work truck that had a cash price of $60,000. This transaction lacks commercial substance.
A. The truck and $45,000 cash was given in exchange for a new work truck that had a cash price of $60,000. This transaction has commercial substance.
B. The truck and $40,000 were exchanged for a new work truck that had a cash price of $60,000. This transaction lacks commercial substance.

Explanation / Answer

Part - A

Annual Depreciation = (45,000 - 3,000) / 7 = 6,000

Part - B

Calculations :

Note: The gain is not recorded by the company.

Debit Credit Delivery Truck (new) $60,000 Accumulated Depreciation (old) $28,000 Loss on Disposal of Delivery Truck $2,000 Delivery Truck (old) $45,000 Cash $45,000

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