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    Gain/Loss on trade-in equipment

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    On March 14, batting co. traded in one of it's cages for one that cost $300,000. The seller of the batting cage is willing to allow a trade in amount of $20,000. The initial cost of old equipment was $100,000 with an accumilated depreciation of $80,000. Depreciation has been taken up at the end of the year. The difference will be paid in cash. What is the amount of gain or loss on this transaction?

    a)gain will not be recognized and will add to the price of old equipment
    b)gain will not be recognized and will be added to the price of new equipment
    c) The gain will not be recognized and will subtract from the price of the old equipment
    d) The gain will not be recognized and will be subtracted from the price of the new equipment.

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    Solution Preview

    The book value of the equipment is 100,000-80,000 = 20,000. The trade in allowance is 20,000. Since the book value and the trade in allowance is the same, there is no gain or loss. If ...

    Solution Summary

    The solution explains how a journal entry be made when there is a trade in of an old equipment and a new equipment is taken.