On January 2, 2010, a company purchased a delivery truck for $45,000 cash. The t

Question

On January 2, 2010, a company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record the disposition of the truck on September 1, 2014,accumulated depreciate was $28,000 under each of the following assumptions:

a. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash price of $60,000. This transaction has commercial substance.

b. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price of $60,000. This transaction lacks commercial substance.  

Explanation / Answer

The Book value of Truck as on September 1, 2014 (Date of sale)

Cost less accumulated depreciation on truck

$ 45000- $28000 = $17000

The New Truck was purchased for old truck + 45000 so,

CONSIDERATION PAID = Value of old truck + Cash paid

=. 17000+ 45000. = $62000

THE FAIR VALUE OF NEW TRUCK. =. $. 60000

SO. LOSS ON DISPOSAL OF TRUCK =. $. 2000

Entry for transaction

NEW TRUCK. DEBIT. 60000

ACCUMULATED DEPRECIATION. Debit. 28000

LOSS ON DISPOSAL OF OLD TRUCK Debit 2000

Cash. Credit. 45000

Old truck. Credit. 45000

2 If cash paid $40000. , The Considerations paid for new truck = 17000+40000=. 57000. ,So Profit on disposal = 60000-57000. = $3000

Entry.   

New truck debit. 60000

Accumulated depreciation debit. 28000

Cash credit. 40000

Old truck credit. 45000

Profit on disposal credit. 3000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.