Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $

Question

Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 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

Account Titles and Explanation

Debit

Credit

Explanation / Answer

Accounts Titles & Explanation

Debit

Credit

Computer

$3300

Accumulated Depreciation-Truck

$18000

     Truck

$20000

     Cash

$500

     Gain on Exchange

$800

(For recording exchange of used truck with small computer)

Working Note;

1. When used truck is disposed off then truck account will be credited and accumulated depreciation on truck will be debited.

2. As per information of the question, it is clear that Computer will bring in the business hence computer account will be debited.

3. Cash is paid hence cash account will be credited.

4. Gains are always credited hence gain on exchange will be credited.

5. Gain on exchange is calculated as follow;

($3300 + $18000 - $20000 - $500) = $800

Accounts Titles & Explanation

Debit

Credit

Computer

$3300

Accumulated Depreciation-Truck

$18000

     Truck

$20000

     Cash

$500

     Gain on Exchange

$800

(For recording exchange of used truck with small computer)

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