Question

Reus Truck Company replaces the tires of its trucks. The new tires have a price of...

Reus Truck Company replaces the tires of its trucks. The new tires have a price of $127,000. The old tires have an original cost of $144,000 and accumulated depreciation of $128,000. Reus gave the old tires and $111,000 cash for the new tires. What is the effect of the entry to record the replacement on total assets?

Multiple Choice

  • Increase of 111,000

  • Decrease of $11,000

  • Increase of $16,000

  • Decrease of $17,000

  • No effect

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Answer #1

Ans. No effect

The new asset received is only recorded at its own fair value if the value of the asset given up cannot be determined.Here, the fair value of old trucks is not given.

Book value of old trucks = $ 144000-$128000

=$16000

Consideration paid for new asset = cash paid + book value of old trucks

=$111000+$16000 =$127000=fair value of new assets

The amount of cash given and book value of old trucks are recorded in the form of new assets.Hence there is no effect of the entry to record replacement of the assets on the total asset.

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