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Trade-in

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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 Preview

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 ...

Solution Summary

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

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See Also This Related BrainMass Solution

Trade in International Business

Scenario:

Content Cow Dairy, Inc. began as a small, family-run dairy farm in Wisconsin in the 19th century, established by a Swedish immigrant, John Swanson. Over the years, the firm has acquired more land and now runs a herd of roughly 1,000 milk-producing cows. The firm is now incorporated for reasons of liability although the Swanson family retains control. The dairy has greatly expanded its production of milk and milk products to the point that Content Cow Dairy has sufficient cash flow to weather most fluctuations in dairy prices. The national Got Milk? campaign run by the industry helped keep consumption of milk products up in the U.S. for a number of years despite popular concerns about cholesterol and saturated fats and competition from other beverages. To maintain the company's growth and decrease its reliance on the mature American market, Karl Swanson, the President and CEO of Content Cow Dairy (and the great-grandson of its founder) is seeking new markets overseas for the company's products, particularly shelf-stable milk beverages and cheeses. Egypt is at the top of the list as a prime market and a focus of Content Cow's future plans.

Currently, no one in the firm has any experience with overseas markets or how to export products. Karl has the idea that countries without the natural endowments needed for raising dairy cattle (ample water and grazing land) might be good markets for dairy products. He is also aware that his family firm is competing for foreign markets with other U.S. firms and firms from leading dairy countries such as New Zealand and Denmark. For these reasons and on the advice of his state's department of commerce, Karl has decided to seek the assistance of a trade consulting firm, Alexander and Kravis (A&K).

A&K, Inc. is an international trade consulting service that has been in operation for the past 15 years. The principals in the firm include attorneys specializing in international trade law, economists, former members of the U.S. Foreign Service, former U.S. customs officials, logistics specialists, and customs brokers. The firm advises its clients on both importing to the U.S. and exporting from the U.S. to various foreign countries.

The firm is especially knowledgeable about business conditions in Latin America, the Middle East, and North Africa although it has access to consultants for other geographic areas. The firm is able to assist its clients in identifying potential markets for its products, developing relationships with foreign distributors, navigating U.S. export and foreign import laws, understanding foreign business practices and customs, and developing a long-term strategy for expansion of the client's business overseas. It provides specialists who can prepare the necessary export and import documents and arrange for transportation and shipping of the exports. Translation services are also available. A&K has a number of large corporations as clients but has identified a niche in serving small to midsize, family-owned firms.

As A&K's account manager for Content Cow Dairy, you are tasked with explaining various aspects of the international business environment and the export process to Mr. Swanson. You will be preparing a series of briefings, memos, and reports to help him understand.

Deliverable Length: 1500-1750 words

Details: Content Cow Dairy has no experience and only limited resources to begin exporting. As a family firm for more than 100 years, Mr. Swanson also wants to maintain control over the production and marketing of its products. You are to prepare a report for him in which you do the following:

Explain the various ways, with examples, that Content Cow Dairy might export to Egypt.
Discuss the pros and cons of the various ways of exporting to Egypt.
Recommend which of these makes the most sense for Content Cow Dairy, and why.

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