Gilly Construction trades in an old tractor for a new tractor, receiving a $27,0
ID: 2604989 • Letter: G
Question
Gilly Construction trades in an old tractor for a new tractor, receiving a $27,000 trade-in allowance and paying the remaining $81,000 in cash. The old tractor had cost $83,000, and straight-line accumulated depreciation of $45,000 had been recorded to date under the assumption that it would last eight years and have a $11,000 salvage value. Answer the following questions assuming the exchange has commercial substance.
1. What is the book value of the old tractor at the time of exchange?
2. What is the loss on this asset exchange?
3. What amount should be recorded (debited) in the asset account for the new tractor?
Explanation / Answer
Answer:
a)
Book Value
=The cost of the old tractor-Accumulated Depreciation
=$83,000-$45,000
=$38,000
___________________________________________________
b)
Loss on Exchange
=Book Value-Trade in allowance
=$38,000-$27,000
=$11,000
_____________________________________________________
c)
Debit to new tractor account
=Cash paid+ Trade in allowance
=$81,000+$27,000
=$108,000
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