Durler Company purchased equipment on January 2, 2013, for $112,000. The equipme
ID: 2566771 • Letter: D
Question
Durler Company purchased equipment on January 2, 2013, for $112,000. The equipment had an estimated useful life of 5 years with an estimated salvage value of $12,000. Durler uses straight-line depreciation on all assets. On January 2, 2017, Durler exchanged this equipment plus $12,000 in cash for newer equipment. The old equipment has a fair value of $50,000.
Prepare the journal entry to record the exchange on the books of Durler Company. Assume that the exchange has commercial substance. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
DateAccount Titles and Explanation
Debit
Credit
Jan. 2Explanation / Answer
Original Cost of Equipment $ 112,000 Salvage value at end of 5th yr $ 12,000 Estimated life 5 yrs Annual depreciation = Original cost - Salvage value / Estimated life ( 112000 -12000) /5 = $ 20,000 Equipment purchased on Jan 2 ' 2013 Exchanged on Jan 2' 2017 Used for total 4 years Accumulated Depreciation on jan 2 2017 = 20000 *4 = $ 80,000 Book value of Equipemtn = 112,000 -80,000 = $ 32,000 Exchange at fair value $ 50,000 Gain On disposal of assets $ 18,000 Journal Entry: Accumulated Depreciation- Equipment Dr. 80,000 New Equipment Dr. (12000+50000) Dr. 62,000 Old Equipment Cr. 112,000 Cash Account Cr. 12,000 Gain on Disposal of assets Cr. 18,000
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