Question

1. Jose owns a scuba shop. For a fee, Jose takes snorkelers to a nearby state park aboard his pontoon boat. The snorkelers then swim with the local manatees for a while, after which they eat a boxed lunch and head back to the shop. Jose decides to trade his old pontoon boat in for a 27’, 15-person party barge, which sells for $39,995. The old pontoon boat had an original cost of $25,500 and book value of $12,000. Jose paid $8,000 in cash for the party barge and gave the seller a note for $19,000.

Let’s review

Jose is getting: a party barge and a note payable for $19,000

Jose is giving up: the old pontoon boat and $8,000 in cash

1. What was the balance in the accumulated depreciation account for Jose’s old boat?
2. Help Jose record the transaction (including any gain or loss).

Answer 1

A: What was the balance in the accumulated depreciation account for Jose’s old boat?

Balance in accumulated depreciation = Original cost - Carring Book Value

Balance in accumulated depreciation = $25,500 - $12,000 = $13,500.

B: Journal Entry

Gain/(loss) = Sale value - Carring amount of asset

Gain/(loss) = $12,995 - $12,000

Gain/(loss) = $995

in this case selling value canbe derived as follow.

Payment required for party barge = $39,995

Less: Payment made by note payable = $19,000

Less: Cash Paid = $8,000

which is $12,995.