Brief Exercise 10-10 Grouper Company traded a used welding machine (cost $10,800

Question

Brief Exercise 10-10 Grouper Company traded a used welding machine (cost $10,800, accumulated depreciation $3,600) for office equipment with an estimated fair value of $6,000. Grouper also paid $3,600 cash in the transaction Prepare the journal entry to record the exchange. (The exchange has commercial substance.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS

Explanation / Answer

The journal entry is as follows:

Accumulated Depreciation A/c 3600  

Office Equipment A/c 6000

Loss on sale of welding machine A/c 4800

To Welding machine A/c 10800

To Cash a/c 3600

Explanation:

1. Accumulated depreciation is a credit balance account and since the asset is exchanged it is debited.

2. Office equipment is debited with fair value since it is a new asset coming into business.

3. Cash a/c is credited because we paid cash.

4. Welding machine A/c is credited because it is given in exchange.

5. The balancing figure is profit or loss on exchange.

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