Skysong Company purchased a heavy-duty truck on July 1, 2014, for $30,360. It wa
ID: 2570723 • Letter: S
Question
Skysong Company purchased a heavy-duty truck on July 1, 2014, for $30,360. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,360. The company uses the straight-line method. It was traded on August 1, 2018, for a similar truck costing $43,660; $16,870 was allowed as trade-in value (also fair value) on the old truck and $26,790 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in? (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
Cost allocated to land $ Cost allocated to building $Explanation / Answer
TAMARISK COMPANY: The total purchase price of $2201000 should be allocated to the land and building on the basis of the estimated fair values. Total estimated fair value = 700137+1892963 = $ 25,93,100 Cost allocation: Land = 2201000*700137/2593100 = $ 5,94,270 Answer Building = 2201000*1892963/2593100 = $ 16,06,730 Answer Total allocated $ 22,01,000 SKYSONG COMPANY: Annual depreciation = (30360-6360)/10 = 2400 Accumulated depn as on August 1, 2018: Depreciation for 2014 = 2400*6/12 = 1200 Depreciation for 2015, 2016 and 2017 = 2400*3 = 7200 Depreciation for 2018 =2400*7/12 = 1400 Accumulated depn as on August 1, 2018 9800 JOURNAL ENTRY TO RECORD THE TRADE-IN Trucks (New) 43660 Accumulated depreciation-Trucks 9800 Loss on sale of trucks 3690 Trucks (old) 30360 Cash 26790
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