Question

# Lea Company decided to exchange its equipment for a new one on March 10, 2020. The...

Lea Company decided to exchange its equipment for a new one on March 10, 2020. The equipment had a cost of \$25,000 and its accumulated depreciation at the disposal date was \$19,000. To get the new equipment; the company paid \$10,000 cash. The fair value of the old equipment is \$4,500.

What is the cost of the new equipment? *

a-\$10,000

b-\$14,500

c-\$16,000

d-None of the above

Did the exchange of the equipment results a gain or loss? In what amount? *

a-Gain \$1,500

b-Loss \$1,500

c-Gain \$4,500

d-Loss \$4,500

The exchange entry of the equipment will include a: *

a-Debit old equipment \$14,500

b-Credit Cash \$1,000

c-Credit gain \$1,500

d-None of the above

1. Cost of the new equipment = Fair value of old equipment + Cash paid = \$4,500 + \$10,000 = \$14,500

2. The exchange of the equipment results in a loss and the loss is the balancing amount in the following exchange entry:

Accumulated depreciation Dr \$19,000

Loss. Dr. \$1,500

New Equipment Dr. \$14,500

To Cash \$10,000

To Old Equipment \$25,000

(To record the exchange entry and the balancing loss)

3. The exchange entry of the equipment will include the above items, which do not match with the options.

Answer is d-None of the above