24. Waterway Industries traded in a manual pressing machine for an automated pre

Question

24. Waterway Industries traded in a manual pressing machine for an automated pressing machine and paid $40,500 cash. The old machine cost $466,000 and had accumulated depreciation of $135,000 up to that date and had a net book value of $331,000. The old machine had a fair value of $295,000. Which of the following is the correct journal entry to record the exchange assuming a lack of commercial substance? Cash Equipment (new) Loss on Disposal Accum. Deprec. (old) 40,500 295,000 36,000 135,000 Equipment (new) 506,500 335,500 36,000 135,000 B. Equipment (new) Loss on Disposal Accum. Deprec. (old) Equipment (new) Cash 466,000 40,500 C.Equipment (new) 641,500 Accum. Deprec. (old) Equipment (old) 135,000 466,000 40,500 as

Explanation / Answer

Loss on disposal = Fair value of asset given up - Book value of asset given up

= 295,000 - 331,000 = 36,000

Equipment (new) = Book value of asset given up + Cash paid - Loss on disposal

= 331,000 + 40,500 - 36,000

= 335,500

Journal entry

The answer is B.

Equipment (new) 335,500 Loss on disposal 36,000 Accumulated depreciation 135,000 Equipment (new) 466,000 Cash 40,500

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