GOn July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $220,000. Twin Pines received a trade-in allowance (fair market value) of $45,000 on the old equipment of a similar type and paid cash of $175,000. The following information about the old equipment is obtained from the account in the equipment ledger: cost, $180,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $120,000; annual depreciation, $12,000. Assume the exchange has commercial substance. a. Journalize the entry to record the current depreciation of the old equipment to the date of trade-in. If an amount box does not require an entry, leave it blank. b. Journalize the entry to record the exchange transaction on July 1. If an amount box does not require an entry, leave it blank.

Explanation:

The book Value of equipment will be Cost of Asset subtracted from accumulated depreciation which is computed below;

Particulars

Amount

Cost of Equipment

$180,000

Less: Accumulated Depreciation for 4 years

($120,000)

Book Value of equipment at end of 31st December

$60,000

Therefore, Book value of equipment is $6,000

Book Value of asset on January 1 is $60,000

Now equipment was sold in month of July 1

(a)

Half year depreciation of $6,000 will be journalized as under:

General Journal

Year

Particulars

L.F

Debit ($)

Credit ($)

20XX

July 1

Depreciation Expense-Equipment

6,000

Accumulated Depreciation-Equ.

6,000

(For depreciation of $6,000 for half year )

Journal entries to record the exchange are as follows:

(b)

Exchange has commercial substance

Date

Particulars

L.F

Amount ($)

Amount ($)

July 1

Equipment

220,000

Acc Depreciation

126,000

Loss on exchange of equipment

9,000

Old equipment

180,000

Cash

175,000

(Old Equipment was exchanged with new equipment)

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