Question

Mbappe Airways replaces the seats in one of its airplanes. The new seats have a price of $970,000. The old seats have an original cost of $530,000 and accumulated depreciation of $478,000. Mbappe gave the old seats and $925,000 cash for the new seats. What is the effect of the entry to record the replacement on total assets?

• No effect

• Increase of $97,000

• Increase of 45,000

• Decrease of $7,000

• Decrease of $52,000

Answer 1

Cost of old seats = $530,000

Accumulated depreciation = $478,000

Book value of old seats = Cost of old seats - Accumulated depreciation

= 530,000 - 478,000

= $52,000

Cash paid for new assets = $925,000

Cost of new seats = $970,000

Decrease in assets = Book value of old seats + Cash paid for new assets - Cost of new seats

= 52,000 + 925,000 - 970,0000

= $7,000

Fourth option is the correct option

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