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Question 14:

Machinery acquired at a cost of $90,000 and on which there is accumulated depreciation of $50,000 (including depreciation for the current year to date) is exchanged for similar machinery. For financial reporting purposes, present entries to record the disposition of the old machinery and the acquisition of new machinery under each of the following assumptions:

(a) Price of new, $115,000; trade-in allowance on old, $4,000; balance paid in cash.
(b) Price of new, $115,000; trade-in allowance on old, $44,000; balance paid in cash.

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Solution Summary

The solution explains the journal entries to be made when old machinery is exchanged with trade-in allowance

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The book value of the old machine is 90,000-50,000=40,000

a. The trade-in allowance is 4,000 and the book value is 40,000 resulting in a loss. The loss is 40,000-4,000=36,000. The journal entry for exchange of similar assets with a loss would be

Machinery ...

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