Question

Willis Bus Service traded in a used bus for a new one. The original cost of the old bus was $54,900. Accumulated depreciation at the time of the trade-in amounted to $35,500. The new bus cost $79,500 but Willis was given a trade-in allowance of $10,800.

a. What amount of cash did Willis have to pay to acquire the new bus?

b. Compute the gain or loss on the disposal for financial reporting purposes.

Answer 1

Ans:

Particulars	Amount
Cost of old bus	$54,900
Less: Accumulated depreciation	($35,500)
Book value of old bus	$19,400

Fair value of old bus = $10,800

Loss on disposal of old bus = (Fair value of old bus - Book value of old bus)

Loss on disposal of old bus = ($10,800-$19,400)

Loss on disposal = ($8,600).

Calculating amount to be paid to acquire new bus:

Cost of new bus	$79,500
Less: Trade in allowance	($10,800)
Amount to be paid to acquire new bus	$68,700

Thank you,