Question

# Company exchanged an old forklift with an original cost of \$20,000, accumulated depreciation to date of...

Company exchanged an old forklift with an original cost of \$20,000, accumulated depreciation to date of \$15,000, and a fair value of \$6,000. The new forklift list price is \$25,000. A trade-in allowance of \$7,000 was given for the old forklift.

Which of the following is the correct journal entry to record the exchange?

Select one:
a. New Equipment 23,000
Accumulated Depreciation 15,000
Old Equipment 20,000
Cash 17,000
Gain on Disposal 1,000
b. New Equipment 38,000
Old Equipment 20,000
Cash 18,000
c. New Equipment 24,000
Accumulated Depreciation 15,000
Old Equipment 20,000
Gain on Disposal 1,000
Cash 18,000
d. New Equipment 23,000
Accumulated Depreciation 15,000
Equipment 20,000
Cash 18,000

New Equipment 24,000

Accumulated Depreciation 15,000

Old Equipment 20,000

Gain on Sale 1,000

Cash 18,000

Explanation :

Gain on Sale of equipment upto fairvalue is recognised.

Actual gain = trade in value - (cost - accumulated Depreciation)

= 7,000 - (20,000 - 15,000)

= 2,000

This must be limited to Fair value - (Cost - Accumulated Depreciation)

= 6,000 - (20,000-15,00)

= 1,000

So Gain is 1,000

And Cash to be paid = list price - trade-in

= 25,000 - 7,000

= 18,000

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