On 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. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on July 1.
Answer:
a.
Depreciation Expense—Equipment 6,000
Accumulated Depreciation—Equipment 6,000
Equipment depreciation ($12,000 × 6/12).
b.
Accumulated Depreciation—Equipment 126,000
Equipment 220,000
Loss on Exchange of Equipment 9,000
Equipment 180,000
Cash 175,000
