McArthur Inc. has negotiated the purchase of a new piece of automatic equipment

Question

McArthur Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $7,000 plus trade-in, f.o.b. factory. McArthur Inc. paid $7,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand fair value of $45,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $1,100.

(a) Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(b) Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable. Prepare the general journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Automatic Equipment (7000 + 1100 + 45800) Dr. 53900

Accumulated Depreciation - Equipment (62000 - 42000) Dr. 20000

Equipment Cr. 62000

Cash (7000 + 1100) Cr. 8100

Gain on Disposal of Equipment Cr. 3800

Part B:

Automatic Equipment (42000+ 8100) Dr. 50100

Accumulated Depreciation - Equipment (62000 - 42000) Dr. 20000

Equipment Cr. 62000

Cash (7000 + 1100) Cr. 8100

Notes:

Gain on Disposal of Equipment:

Cost of Old Asset = 62000

Less Accumulated Depreciation = 20000

Book Value = 42000

Fair Market Value of Old Asset = 45800

Gain on Disposal of Equipment = 45800 - 42000 = 3800

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects