Question

To practice recording an exchange of PPE and to determine the effects of the exchange on the financial statements.

On December 15th, Terry's management decided to trade in one of their machines for a newer model. After long discussions with their auditors, Terry’s management has decided that the change in capacity between the old and new machines makes this an exchange without substance. The old machine originally cost $670,000 and had been fully depreciated to its $50,300 salvage value. The new machine typically sells for $841,000, but the vendor offered Terry a $73,000 trade-in discount on the old machine if the balance is paid in cash. Terry's management was excited about the deal, since they would have been able to sell the old machine for only $50,300 if they had tried to dispose of it on the open market.

What would the adjusting entry/entries be?

Answer 1