Question

China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck. The fair value and book value of the delivery truck given were $24,000 and $27,000 (original cost of $32,000 less accumulated depreciation of $5,000), respectively. To equalize market values of the exchanged assets, Midwest Chicken received $7,500 in cash from China Inn.

1. At what amount did Midwest Chicken record the equipment?
  

  

2. How much gain or loss did Midwest Chicken recognize on the exchange?
  

Answer 1

Solution:-

1. At what amount did Midwest Chicken record the equipment:-

31,500

Explanation:-

Record value = Fair value + cash paid

= 24,000 + 7,500

= 31,500.

2. How much gain or loss did Midwest Chicken recognize on the exchange:-

Loss on Disposal of Equipment = 3,000

Explanation:-

Account titles and explanation	Debit	Credit
Delivery Truck	31,500
Accumulated Depreciation--Equipment	5,000
Loss on Disposal of Equipment	3,000
Equipment		32,000
Cash		7,500