During the current year, a company exchanged an old truck costing $58,000 with a
ID: 2579858 • Letter: D
Question
During the current year, a company exchanged an old truck costing $58,000 with accumulated depreciation of $52,000 for a new truck. The new truck had a cash price of $80,000 and the company received a trade-in allowance on the old truck with the balance of $64,000 paid in cash.
Assuming this transaction lacks commercial substance, in the journal entry to record the exchange,
what will happen to the new truck account - debit or credit?
What amount will be debited or credited to the new truck account? (Be sure to only type in the amount. Do not include $, commas, or decimal points.)
Explanation / Answer
1) The new Truck Account will be a debit Account. Since it is a Asset.
2) Calculation of Amount will be debited to the new truck account :
WDV of the Old truck = $58,000 - $52,000
= $6,000
Cash paid for the New truck = $64,000
Amount that should be debited to New truck account = $64,000 + $6,000
= 70000
Since the transaction lacks commercial substance there will be no gain or no loss on this transaction should be recognised.
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