Question

# China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck....

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?

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

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